preliminary official statement dated february 13, 2020 … · this preliminary official statement...

PRELIMINARY OFFICIAL STATEMENT Dated February 13, 2020

NEW ISSUE – Book-Entry-Only Rating: Moody’s: “___” S&P: “___”

PSF Guarantee: “Applied For” (See “OTHER INFORMATION - Ratings” and

“THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM” herein)

In the opinion of Bond Counsel (identified below), assuming continuing compliance by the District (defined below) after the date of initial delivery of the Bonds (defined below) with certain covenants contained in the Order (defined below) and subject to the matters described under "TAX MATTERS" herein, interest on the Bonds under existing statutes, regulations, published rulings, and court decisions will be excludable from the gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the Bonds. (See "TAX MATTERS" herein.)

$148,000,000* MIDWAY INDEPENDENT SCHOOL DISTRICT

(A Political Subdivision of the State of Texas Located in McLennan County) UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2020

Dated Date: March 1, 2020 Due: August 15 Interest Accrues from the Date of Initial Delivery (defined below) as shown on page 2 PAYMENT TERMS . . . The Midway Independent School District (the “District”) is issuing its $148,000,000* Unlimited Tax School Building Bonds, Series 2020 (the “Bonds”). Interest on the Bonds will accrue from the Date of Initial Delivery to the Underwriters (defined below) and will be payable on February 15, 2021, and each August 15 and February 15 thereafter until stated maturity or prior redemption. The Bonds will be issued in denominations of $5,000 of principal amount or any integral multiple thereof within a maturity. Interest on the Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company, New York, New York (“DTC”) pursuant to the book-entry-only system described herein. No physical delivery of the Bonds will be made to the owners thereof (see “THE BONDS – Book-Entry-Only System”). The initial Paying Agent/Registrar is UMB Bank, N.A., Austin, Texas (see “THE BONDS – Paying Agent/Registrar”). AUTHORITY FOR ISSUANCE . . . The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, including, particularly, Chapter 1371, Texas Government Code, as amended (“Chapter 1371”), Sections 45.001 and 45.003(b)(1), Texas Education Code, as amended, an election held in the District on November 5, 2019 (the “Election”), and a bond order (the “Bond Order”) adopted by the Board of Trustees (the “Board”) of the District on February 18, 2020, in which the Board delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who will approve and execute a “Pricing Certificate” which will complete the sale of the Bonds (the Bond Order and the Pricing Certificate are collectively referred to as the “Order”). The Bonds constitute direct obligations of the District, payable from a continuing direct annual ad valorem tax levied, without legal limitation as to rate or amount, on all taxable property located within the District, as provided in the Order. An application has been filed by the District and the District has received conditional approval for the Bonds to be guaranteed by the Texas Permanent School Fund which guarantee will automatically become effective when the Attorney General of Texas approves the issuance of the Bonds (see “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM”). PURPOSE . . . Proceeds from the sale of the Bonds will be used (i) for the acquisition, construction, renovation and equipment of school facilities in the District and (ii) to pay the costs associated with the issuance of the Bonds (see “THE BONDS – Purpose”).

CUSIP PREFIX: 598223 MATURITY SCHEDULE

Shown on page 2

LEGALITY . . . The Bonds are offered for delivery when, as and if issued and received by the initial purchasers identified below (the “Underwriters”) of the Bonds and subject to the approving opinion of the Attorney General of Texas and the approval of certain legal matters by McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Bond Counsel (see “APPENDIX C – Form of Bond Counsel’s Opinion”). Certain legal matters will be passed upon for the Underwriters by their legal counsel, Winstead, PC, San Antonio, Texas.

DELIVERY . . . It is expected that the Bonds will be available for delivery through DTC on or about March 18, 2020 (the “Date of Initial Delivery”).

PIPER SANDLER & CO. BAIRD FHN FINANCIAL CAPITAL MARKETS FROST BANK RBC CAPITAL MARKETS

* *Preliminary, subject to change.

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$148,000,000* MIDWAY INDEPENDENT SCHOOL DISTRICT

(A Political Subdivision of the State of Texas Located in McLennan County) UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2020

CUSIP PREFIX (1): 598223

MATURITY SCHEDULE*

Maturity August 15

Principal Amount

Interest Rate

Initial Yield

CUSIP Suffix(1)

2022 $820,000

2023 850,000

2024 875,000

2025 1,075,000

2026 2,595,000

2027 3,245,000

2028 6,350,000

2029 9,060,000

2030 9,380,000

2031 9,705,000

2032 10,045,000

2033 10,310,000

2034 10,760,000

2035 11,135,000

2036 11,525,000

2037 11,925,000

2038 12,345,000

2039 12,775,000

2040 13,225,000

(Interest Accrues from the Date of Initial Delivery) REDEMPTION . . . The District reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2030, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see “THE BONDS – Redemption”). Additionally, the Bonds may be subject to mandatory redemption in the event the Underwriters elect to designate two or more consecutive maturities as “Term Bonds.” * Preliminary, subject to change. (1) CUSIP data is provided by CUSIP Global Services, managed by S&P Global Market Intelligence on behalf of the American Bankers

Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. None of the District, the Financial Advisor, or the Underwriters take any responsibility for the accuracy of CUSIP numbers.

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DISTRICT OFFICIALS, STAFF AND CONSULTANTS

ELECTED OFFICIALS

Name Years Served Term Expires Occupation

Mr. Pete Rusek President

23 May 2020 Attorney/Shareholder, Sheehy, Lovelace and Mayfield, P.C.

Mr. Tom Pagel Vice-President

13 May 2021 Principal Dunn & Pagel Builders, LLC

Ms. Susan Vick Secretary

8 May 2020 Civic Duty/Volunteer

Mr. Brad Alford Member

2 May 2021 Owner, The Alford Company

Mr. Rick Tullis Member

6 May 2022 President Capstone Mechanical

Dr. Andy Popejoy Member

1 May 2022 Physician Premier ER & Urgent Care

Ms. Pam Watts Member

3 May 2022 Freelance Writer and Co-Founder, The Mothers of Midway

SELECTED ADMINISTRATIVE STAFF

Name Position Years with the District Years in Present Position

Dr. George Kazanas Superintendent 7 7

Mr. Wesley Brooks Assistant Superintendent of Finance 5 5

Ms. Mary Lou Glaesmann Assistant Superintendent for Human Resources 18 9.5

Dr. Jeanie Johnson Assistant Superintendent for Administrative Services 7 7

Dr. Aaron Peńa Assistant Superintendent for Curriculum & Instruction 8 1

CONSULTANTS AND ADVISORS Bond Counsel ................................................................................................................... McCall, Parkhurst & Horton L.L.P.

Dallas, Texas Financial Advisor ................................................................................................................... Specialized Public Finance Inc.

San Antonio, Texas Auditors .................................................................................................................................... Pattillo, Brown & Hill, L.L.P.

Waco, Texas

For additional information regarding the District, please contact:

Dr. George Kazanas Superintendent Midway Independent School District 13885 Woodway Drive Woodway, Texas 76712 Phone: (254) 761-5610 Fax: (254) 761-5789 [email protected]

or Mr. Victor Quiroga, Jr. Managing Director Specialized Public Finance Inc. 13300 Old Blanco Road, Suite 310 San Antonio, Texas 78216 Phone: (210) 239-0204 Fax: (210) 239-0126 [email protected]

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USE OF INFORMATION IN THE OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the “Rule”), this document constitutes an “official statement” of the District with respect to the Bonds that has been “deemed final” by the District as of its date except for the omission of the information permitted by the Rule. No dealer, broker, salesman or other person has been authorized by the District, the Financial Advisor, or the Underwriters to give any information, or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the District, the Financial Advisor. This Official Statement does not constitute an offer to sell Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Certain information set forth herein has been obtained from the District and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Financial Advisor or the Underwriters. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or other matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” for a description of the District’s undertaking to provide certain information on a continuing basis. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THE BONDS HAVE BEEN REGISTERED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NONE OF THE DISTRICT, ITS FINANCIAL ADVISOR OR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY (“DTC”) OR ITS BOOK-ENTRY-ONLY SYSTEM OR THE AFFAIRS OF THE TEXAS EDUCATION AGENCY (“TEA”) DESCRIBED UNDER “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM,” AS SUCH INFORMATION IS PROVIDED BY DTC AND THE TEA, RESPECTIVELY. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The agreements of the District and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as constituting an agreement with the purchasers of the Bonds. INVESTORS SHOULD READ THIS ENTIRE OFFICIAL STATEMENT, INCLUDING THE ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION.

TABLE OF CONTENTS

COVER PAGE ................................................................................ 1 CURRENT PUBLIC SCHOOL FINANCE SYSTEM .. 30 DISTRICT OFFICIALS, STAFF AND CONSULTANTS .......... 3 THE SCHOOL FINANCE SYSTEM AS APPLIED USE OF INFORMATION IN THE OFFICIAL STATEMENT . 4 TO THE DISTRICT ..................................................... 34 OFFICIAL STATEMENT SUMMARY ....................................... 5 TAX RATE LIMITATIONS ........................................... 35 INTRODUCTION .......................................................................... 7 AD VALOREM TAX PROCEDURES .......................... 37 THE BONDS ................................................................................... 7 INVESTMENTS ............................................................... 40 THE PERMANENT SCHOOL FUND TAX MATTERS .............................................................. 42 GUARANTEE PROGRAM ........................................................ 13 CONTINUING DISCLOSURE OF INFORMATION .. 44 STATE AND LOCAL FUNDING OF SCHOOL OTHER INFORMATION ............................................... 46 DISTRICTS IN TEXAS .............................................................. 29

FINANCIAL INFORMATION OF THE DISTRICT .................................................................................................... APPENDIX A

GENERAL INFORMATION REGARDING THE DISTRICT ..................................................................................... APPENDIX B

FORM OF BOND COUNSEL’S OPINION .................................................................................................................... APPENDIX C

EXCERPTS FROM THE DISTRICT’S ANNUAL FINANCIAL REPORT ............................................................... APPENDIX D

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OFFICIAL STATEMENT SUMMARY

This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE DISTRICT ....................................... The Midway Independent School District (the “District”) is a political subdivision located

in McLennan County, Texas, adjacent to the city of Waco and includes the cities of Woodway and Hewitt, Texas. The District encompasses approximately 86.79 square miles in area (see “INTRODUCTION – Description of the District”).

THE BONDS ........................................... The Bonds are being issued as $148,000,000* Unlimited Tax School Building Bonds,

Series 2020 and will be dated March 1, 2020. The Bonds will be issued as serial bonds maturing August 15 in the years 2022 through 2040, unless the Underwriters elect to designate two or more consecutive maturities as “Term Bonds”.

PAYMENT OF INTEREST ........................ Interest on the Bonds will accrue from the Date of Initial Delivery and will be payable on

February 15, 2021, and each August 15 and February 15 thereafter until maturity or prior redemption (see “THE BONDS – Description of the Bonds”).

AUTHORITY FOR ISSUANCE .................. The Bonds are issued pursuant to the Constitution and general laws of the State of Texas,

including, particularly, Chapter 1371, Texas Government Code, as amended (“Chapter 1371”), Sections 45.001 and 45.003(b)(1), Texas Education Code, as amended, an election held in the District on November 5, 2019 (the “Election”), and a bond order (the “Bond Order”) adopted by the Board of Trustees (the “Board”) of the District on February 18, 2020, in which the Board delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who will approve and execute a “Pricing Certificate” which will complete the sale of the Bonds (the Bond Order and the Pricing Certificate are collectively referred to as the “Order”) (see “THE BONDS – Authority for Issuance”).

SECURITY FOR THE BONDS ................... The Bonds constitute direct obligations of the District, payable from a continuing direct

annual ad valorem tax levied by the District, without legal limit as to rate or amount, on all taxable property located within the District (see “THE BONDS – Security and Source of Payment”).

PSF GUARANTEE ................................ The District has applied for and has received conditional approval from the Texas

Education Agency for the payment of the Bonds to be guaranteed by the Permanent School Fund Guarantee Program of the State of Texas, which guarantee will automatically become effective when the Attorney General of Texas approves the Bonds (see “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM”).

REDEMPTION ...................................... The District reserves the right, at its option, to redeem Bonds having stated maturities on

and after August 15, 2030, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Bonds may be subject to mandatory redemption in the event the Underwriters elect to designate two or more consecutive maturities as “Term Bonds” (see “THE BONDS – Redemption”).

TAX EXEMPTION ................................... In the opinion of Bond Counsel for the District, interest on the Bonds is excludable from

gross income for federal income tax purposes under existing law subject to the matters described under “TAX MATTERS” herein (see “TAX MATTERS” and “APPENDIX C – Form of Bond Counsel’s Opinion”).

USE OF PROCEEDS ................................ Proceeds from the sale of the Bonds will be used (i) for the acquisition, construction,

renovation and equipment of school facilities in the District and (ii) to pay the costs associated with the issuance of the Bonds (see “THE BONDS – Purpose”).”

* Preliminary, subject to change.

6

RATINGS ................................................ The District has made an application to Moody’s Investors Service, Inc. (“Moody’s”) and

S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), for a rating on the Bonds. Moody’s and S&P have assigned municipal bond ratings of ____ and ____ respectively to the Bonds based upon the Permanent School Fund Guarantee. Moody’s and S&P generally rate all bond issues guaranteed by the Permanent School Fund of the State of Texas “Aaa” and “AAA” respectively. The District’s underlying rating on the Bonds (without consideration of the Permanent School Fund Guarantee or other credit enhancement) is “___” by Moody’s and “__” by S&P. (see “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM” and “OTHER INFORMATION – Ratings”). The District has received conditional approval from the TEA for the payment of the Bonds to be guaranteed by the corpus of the Permanent School Fund of the State of Texas.

BOOK-ENTRY-ONLY SYSTEM ............... The definitive Bonds will be initially registered and delivered only to Cede & Co., the

nominee of the Depository Trust Company (“DTC”) pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof in principal amount. No physical delivery of the Bonds will be made to the beneficial owners thereof. Debt service on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see “THE BONDS – Book-Entry-Only System”).

PAYMENT RECORD ............................... The District has never defaulted in payment of its tax supported debt. DELIVERY DATE ................................... When issued, anticipated on or about March 18, 2020. LEGALITY ............................................. Delivery of the Bonds is subject to the approval by the Attorney General of the State of

Texas and the rendering of an opinion as to legality and tax exemption by McCall, Parkhurst & Horton L.L.P, Dallas, Texas, Bond Counsel.

[The remainder of this page intentionally left blank.]

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PRELIMINARY OFFICIAL STATEMENT RELATING TO

$148,000,000*

MIDWAY INDEPENDENT SCHOOL DISTRICT UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2020

INTRODUCTION

This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of the $148,000,000* Midway Independent School District Unlimited Tax School Building Bonds, Series 2020 (the “Bonds”). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the hereinafter defined Order, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Bonds and certain information regarding the Midway Independent School District (the “District” or “Issuer”) and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained upon request from the District’s Financial Advisor, Specialized Public Finance Inc., San Antonio, Texas by electronic mail or upon payment of reasonable copying, handling, and delivery charges. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the final Official Statement will be deposited with the Municipal Securities Rulemaking Board, through its Electronic Municipal Market Access (“EMMA”) system. See “CONTINUING DISCLOSURE OF INFORMATION” for a description of the District’s undertaking to provide certain information on a continuing basis. DESCRIPTION OF THE DISTRICT . . . The District is a political subdivision of the State of Texas (the “State”) located in McLennan County, Texas. The District is governed by a seven-member Board of Trustees (the “Board”) the members of which serve staggered three-year terms with elections being held in May of each year. Policy-making and supervisory functions are the responsibility of, and are vested in, the Board. The Board delegates administrative responsibilities to the Superintendent who is the chief administrative officer of the District. Support services are supplied by consultants and advisors. The District includes the cities of Woodway and Hewitt, encompassing a total of approximately 86.79 square miles (see “APPENDIX B – General Information Regarding the District”).

THE BONDS

DESCRIPTION OF THE BONDS . . . The Bonds are dated March 1, 2020, and mature on August 15 in each of the years and in the amounts shown on page 2 hereof. Interest on the Bonds will accrue from the Date of Initial Delivery as defined on the cover hereof and will be payable on February 15, 2021 and each August 15 and February 15 thereafter until the stated maturity or prior redemption. Interest on the Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The Bonds will be issued in denominations of $5,000 of principal amount or any integral multiple thereof within a maturity. AUTHORITY FOR ISSUANCE . . . The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, including, particularly, Chapter 1371, Texas Government Code, as amended (“Chapter 1371”), Sections 45.001 and 45.003(b)(1), Texas Education Code, as amended, an election held in the District on November 5, 2019 (the “Election”), and a bond order (the “Bond Order”) adopted by the Board of Trustees (the “Board”) of the District on February 18, 2020, in which the Board delegated pricing of the Bonds and certain other matters to a “Pricing Officer” who will approve and execute a “Pricing Certificate” which will complete the sale of the Bonds (the Bond Order and the Pricing Certificate are collectively referred to as the “Order”). SECURITY AND SOURCE OF PAYMENT . . . The Bonds are secured by and payable from a continuing direct annual ad valorem tax levied by the District, without legal limit as to rate or amount, in an amount sufficient to provide for the payment of debt service on the Bonds. An application has been filed and conditional approval has been received by the District for the Bonds to be guaranteed by the Texas Permanent School Fund, which guarantee will automatically become effective when the Attorney General of Texas approves the issuance of the Bonds (see “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM”). PERMANENT SCHOOL FUND GUARANTEE . . . In connection with the sale of the Bonds, the District has submitted an application to the Texas Education Agency and has received conditional approval from the Texas Education Agency for the Bonds to be guaranteed under the State of Texas Permanent School Fund Guarantee Program (Chapter 45, Subchapter C of the Texas Education Code). Subject to satisfying certain conditions discussed under the heading “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM” herein, the Bonds will be absolutely and unconditionally guaranteed by the corpus of the Permanent School Fund of the State of Texas. In the event of default, registered owners will receive all payments due on the Bonds from the corpus of the Permanent School Fund. _______________________ *Preliminary, subject to change.

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TAX RATE LIMITATION . . . There is not a tax rate limitation on unlimited tax debt; however, the District must demonstrate to the Attorney General of Texas at the time of issuance that it has the ability to pay all debt service on its outstanding unlimited tax debt with a debt service tax not to exceed $0.50 per $100 assessed valuation. After the Bonds are issued, the District is required to establish a tax rate, without limitation, sufficient to pay debt service on all of its outstanding unlimited tax debt (see “TAX RATE LIMITATIONS” herein). REDEMPTION . . . The District reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2030, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. Additionally, the Bonds may be subject to mandatory sinking fund redemption in the event the Underwriters elect to aggregate two or more consecutive maturities as term bonds (such aggregated Bonds, the “Term Bonds”). If less than all of the Bonds are to be redeemed, the District may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond (or any portion of the principal amount thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION . . . Not less than 30 days prior to a redemption date for the Bonds, the District shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. DTC REDEMPTION PROVISIONS . . . The Paying Agent/Registrar and the District, so long as a book-entry-only system is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Order or other notices with respect to the Bonds only to DTC. Any failure by DTC to advise any DTC Participant, or of any Direct Participant (defined below) or Indirect Participant (defined below) to notify the beneficial owner, shall not affect the validity of the redemption of the Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds by the District will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its book-entry-only system, a redemption of such Bonds held for the account of DTC Participants in accordance with its rules or other agreements with DTC Participants and then Direct Participants and Indirect Participants may implement a redemption of such Bonds and such redemption will not be conducted by the District or the Paying Agent/Registrar. Neither the District nor the Paying Agent/Registrar will have any responsibility to DTC Participants, Indirect Participants or the persons for whom DTC Participants act as nominees with respect to the payments on the Bonds or the providing of notice to Direct Participants, Indirect Participants, or beneficial owners of the selection of portions of the Bonds for redemption. See “THE BONDS – Book-Entry- Only System” herein. AMENDMENTS . . . In the Order, the District has reserved the right to amend the Order without the consent of any holder for the purpose of amending or supplementing the Order to (i) cure any ambiguity, defect or omission therein that does not materially adversely affect the interests of the holders, (ii) grant additional rights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of the Order that do not materially adversely affect the interests of the holders, (iv) qualify the Order under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect or (v) make such other provisions in regard to matters or questions arising under the Order that are not inconsistent with the provisions thereof and which, in the opinion of Bond Counsel for the District, do not materially adversely affect the interests of the holders. The Order further provides that the holders of the Bonds aggregating in original principal amount of a majority of outstanding Bonds that are the subject of a proposed amendment shall have the right from time to time to approve any amendment not described above to the Order if it is deemed necessary or desirable by the District; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Bonds, no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Bonds; (ii) reducing the rate of interest borne by any of the outstanding Bonds; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Bonds; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Bonds, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Bonds necessary for consent to such amendment. Reference is made to the Order for further provisions relating to the amendment thereof.

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DEFEASANCE . . . The Order provides for the defeasance of the Bonds when the payment on the Bonds to the due date thereof (whether such due date be by reason of maturity or otherwise) is provided by irrevocably depositing with the Paying Agent/Registrar or authorized escrow agent, in trust (1) money sufficient to make such payment and/or (2) Defeasance Securities that mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, and all necessary and proper fees, compensation and expenses of the paying agent for the Bonds, and thereafter the District will have no further responsibility with respect to amounts available to such paying agent (or other financial institution permitted by applicable law) for the payment of such defeased Bonds, including any insufficiency therein caused by the failure of such paying agent (or other financial institution permitted by applicable law) to receive payment when due on the Defeasance Securities. The Order provides that “Defeasance Securities” means any securities and obligations now or hereafter authorized by Texas law that are eligible to discharge obligations such as the Bonds. The Pricing Officer may restrict such eligible securities and obligations as deemed appropriate. In the event the Pricing Officer restricts such eligible securities and obligations, the final Official Statement will reflect the new authorized Defeasance Securities. Current Texas law permits defeasance with the following types of securities: (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the District authorizes the defeasance of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the District authorizes the defeasance of the Bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent. There is no assurance that current Texas law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Order does not contractually limit such investments, registered owners will be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under Texas law. There is no assurance that the ratings for U.S. Treasury securities used as Defeasance Securities or those for any other Defeasance Security will be maintained at any particular rating category. The District has the right, subject to satisfying the requirements of (1) and (2) above, to substitute other Defeasance Securities for the Defeasance Securities originally deposited, to reinvest the uninvested moneys on deposit for such defeasance, and to withdraw for the benefit of the District moneys in excess of the amount required for such defeasance. After firm banking and financial arrangements for the defeasance of the Bonds have been made as described above, all rights of the District to initiate proceedings to call the Bonds for redemption or to take any action amending the terms of the Bonds are extinguished; provided, however, that the right to call the Bonds for redemption is not extinguished if the District: (i) in the proceedings providing for the defeasance of the Bonds, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of such banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. Upon defeasance, such defeased Bonds shall no longer be regarded to be outstanding or unpaid and such defeased Bonds will no longer be guaranteed by the Texas Permanent School Fund. BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, interest and redemption payments on the Bonds are to be paid to and credited by The Depository Trust Company (“DTC”), New York, New York, while the Bonds are registered in its nominee’s name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The District, the Financial Advisor, and the Underwriters cannot and do not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each stated maturity of the Bonds, each in the aggregate principal amount, of such maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100

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countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a S&P Global Ratings rating of “AA+”. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). All payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Bonds held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Paying Agent/Registrar, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. All payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) are the responsibility of the District or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered in accordance with the Order. The District may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered in accordance with the Order.

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The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but none of the District, the Financial Advisor, or the Underwriters take any responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement . . . In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Order will be given only to DTC. Effect of Termination of Book-Entry-Only System . . . In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the District, printed bond certificates will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Order and summarized under “THE BONDS - Transfer, Exchange and Registration” below. PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar is UMB Bank, N.A., Austin, Texas. In the Order, the District retains the right to replace the Paying Agent/Registrar. The District covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the District agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. TRANSFER, EXCHANGE AND REGISTRATION . . . In the event the Book-Entry-Only System should be discontinued, the Bonds will be printed and delivered to the beneficial owners thereof, and thereafter may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. A Bond may be assigned by the execution of an assignment form on the Bond or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond or Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bond being transferred or exchanged, at the corporate trust office of the Paying Agent/Registrar (as defined in the Order), or sent by United States mail, first class, postage prepaid, to the new registered owner or its designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount, as the Bonds surrendered for exchange or transfer. See “THE BONDS – Book-Entry-Only System” herein for a description to be utilized initially in regard to ownership and transferability of the Bonds. LIMITATION ON TRANSFER OF BONDS . . . The Paying Agent/Registrar shall not be required to make any transfer or exchange with respect to Bonds during the period commencing with the close of business on any Record Date and ending with the opening of business on the next following principal or interest payment date, or with respect to any Bond or any portion thereof called for redemption prior to maturity, within 30 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond. REPLACEMENT BONDS . . . If any Bond is mutilated, destroyed, stolen or lost, a new Bond in the same principal amount, maturity and interest rate as the Bond so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Bond, such new Bond will be delivered only upon surrender and cancellation of such mutilated Bond. In the case of any Bond issued in lieu of and in substitution for a Bond which has been destroyed, stolen or lost, such new Bond will be delivered only (a) upon filing with the Paying Agent/Registrar of satisfactory evidence to the effect that such Bond has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the District and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Bond must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. RECORD DATE FOR INTEREST PAYMENT . . . The record date (“Record Date”) for determining the party to whom the interest on a Bond is payable on any interest payment date means the close of business on the last business day of the preceding month. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a “Special Record Date”) will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each holder of a Bond appearing on the registration

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books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS' REMEDIES . . . The Order specifies events of default as the failure of the District to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable or default in the performance or observance of any other covenant, agreement or obligation of the District, which failure materially, adversely affects the rights of the registered owners, including, but not limited to, their prospect or ability to be repaid in accordance with the Order, and the continuation thereof for a period of 60 days after notice of such default is given by any registered owner to the District. Upon an event of default, the registered owners may seek a writ of mandamus to compel District officials to carry out their legally imposed duties with respect to the Bonds, as well as enforce rights of payment under the Permanent School Fund Guarantee, if there is no other available remedy at law to compel performance of the Bonds or the Order covenants and the District’s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles and rests with the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Order does not provide for the appointment of a trustee to represent the interest of the bondholders upon any failure of the District to perform in accordance with the terms of the Order, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners. The Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006), that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in “clear and unambiguous” language. Chapter 1371, which pertains to the issuance of public securities by issuers such as the District, permits the District to waive sovereign immunity in the proceedings authorizing its bonds. Notwithstanding its reliance upon the provisions of Chapter 1371 in connection with the issuance of the Bonds, the District has not waived the defense of sovereign immunity with respect thereto. Because it is unclear whether the Texas legislature has effectively waived the District’s sovereign immunity from a suit for money damages, bondholders may not be able to bring such a suit against the District for breach of the Bonds or Order covenants in the absence of District action. Even if a judgment against the District could be obtained, it could not be enforced by direct levy and execution against the District’s property. Further, the registered owners cannot themselves foreclose on property within the District or sell property within the District to enforce the tax lien on taxable property to pay the principal of and interest on the Bonds. Furthermore, the District is eligible to seek relief from its creditors under Chapter 9 of the United States Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Bonds are qualified with respect to the customary rights of debtors relative to their creditors, principles of governmental immunity and by general principles of equity which permit the exercise of judicial discretion. See “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM” herein for a description of the procedures to be followed for payment of the Bonds by the Permanent School Fund in the event the District fails to make a payment on the Bonds when due. Initially, the only registered owner of the Bonds will be Cede & Co., as DTC’s nominee. See “BOOK-ENTRY-ONLY SYSTEM” herein for a description of the duties of DTC with regard to ownership of Bonds. PURPOSE . . . Proceeds from the sale of the Bonds will be used (i) for the acquisition, construction, renovation and equipment of school facilities in the District and (ii) to pay the costs associated with the issuance of the Bonds. SOURCES AND USES OF PROCEEDS . . . The proceeds from the sale of the Bonds will be applied approximately as follows:

SOURCES OF FUNDS: Par Amount $ [Net] Reoffering Premium _______________ Total Sources of Funds $ USES OF FUNDS: Construction Fund Deposit $ Underwriters’ Discount Cost of Issuance Bond Fund Deposit _______________ Total Uses of Funds $

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THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM The information below concerning the Permanent School Fund and the Guarantee Program for School District Bonds has been provided by the Texas Education Agency and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the District, the Financial Advisor or the Underwriters. This disclosure statement provides information relating to the program (the “Guarantee Program”) administered by the Texas Education Agency (the “TEA”) with respect to the Texas Permanent School Fund guarantee of tax-supported bonds issued by Texas school districts and the guarantee of revenue bonds issued by or for the benefit of Texas charter districts. The Guarantee Program was authorized by an amendment to the Texas Constitution in 1983 and by Subchapter C of Chapter 45 of the Texas Education Code, as amended (the “Act”). While the Guarantee Program applies to bonds issued by or for both school districts and charter districts, as described below, the Act and the program rules for the two types of districts have some distinctions. For convenience of description and reference, those aspects of the Guarantee Program that are applicable to school district bonds and to charter district bonds are referred to herein as the “School District Bond Guarantee Program” and the “Charter District Bond Guarantee Program,” respectively. Some of the information contained in this Section may include projections or other forward-looking statements regarding future events or the future financial performance of the Texas Permanent School Fund (the “PSF” or the “Fund”). Actual results may differ materially from those contained in any such projections or forward-looking statements. HISTORY AND PURPOSE . . . The PSF was created with a $2,000,000 appropriation by the Texas Legislature (the “Legislature”) in 1854 expressly for the benefit of the public schools of Texas. The Constitution of 1876 stipulated that certain lands and all proceeds from the sale of these lands should also constitute the PSF. Additional acts later gave more public domain land and rights to the PSF. In 1953, the U.S. Congress passed the Submerged Lands Act that relinquished to coastal states all rights of the U.S. navigable waters within state boundaries. If the state, by law, had set a larger boundary prior to or at the time of admission to the Union, or if the boundary had been approved by Congress, then the larger boundary applied. After three years of litigation (1957-1960), the U. S. Supreme Court on May 31, 1960, affirmed Texas’ historic three marine leagues (10.35 miles) seaward boundary. Texas proved its submerged lands property rights to three leagues into the Gulf of Mexico by citing historic laws and treaties dating back to 1836. All lands lying within that limit belong to the PSF. The proceeds from the sale and the mineral-related rental of these lands, including bonuses, delay rentals and royalty payments, become the corpus of the Fund. Prior to the approval by the voters of the State of an amendment to the constitutional provision under which the Fund is established and administered, which occurred on September 13, 2003 (the “Total Return Constitutional Amendment”), and which is further described below, the PSF had as its main sources of revenues capital gains from securities transactions and royalties from the sale of oil and natural gas. The Total Return Constitutional Amendment provides that interest and dividends produced by Fund investments will be additional revenue to the PSF. The State School Land Board (“SLB”) maintains the land endowment of the Fund on behalf of the Fund and is generally authorized to manage the investments of the capital gains, royalties and other investment income relating to the land endowment. The SLB is a five member board, the membership of which consists of the Commissioner of the Texas General Land Office (the “Land Commissioner”) and four citizen members appointed by the Governor. (See “2019 Texas Legislative Session” for a description of legislation that changed the composition of the SLB). As of August 31, 2019, the General Land Office (the “GLO”) managed approximately 26% of the PSF, as reflected in the fund balance of the PSF at that date. The Texas Constitution describes the PSF as “permanent.” Prior to the approval by Texas voters of the Total Return Constitutional Amendment, only the income produced by the PSF was to be used to complement taxes in financing public education. On November 8, 1983, the voters of the State approved a constitutional amendment that provides for the guarantee by the PSF of bonds issued by school districts. On approval by the State Commissioner of Education (the “Commissioner”), bonds properly issued by a school district are fully guaranteed by the corpus of the PSF. See “The School District Bond Guarantee Program.” In 2011, legislation was enacted that established the Charter District Bond Guarantee Program as a new component of the Guarantee Program. That legislation authorized the use of the PSF to guarantee revenue bonds issued by or for the benefit of certain open-enrollment charter schools that are designated as “charter districts” by the Commissioner. On approval by the Commissioner, bonds properly issued by a charter district participating in the Program are fully guaranteed by the corpus of the PSF. As described below, the implementation of the Charter District Bond Guarantee Program was deferred pending receipt of guidance from the Internal Revenue Service (the “IRS”) which was received in September 2013, and the establishment of regulations to govern the program, which regulations became effective on March 3, 2014. See “The Charter District Bond Guarantee Program.” State law also permits charter schools to be chartered and operated by school districts and other political subdivisions, but bond financing of facilities for school district-operated charter schools is subject to the School District Bond Guarantee Program, not the Charter District Bond Guarantee Program. While the School District Bond Guarantee Program and the Charter District Bond Guarantee Program relate to different types of bonds issued for different types of Texas public schools, and have different program regulations and requirements, a bond guaranteed under either part of the Guarantee Program has the same effect with respect to the guarantee obligation of the Fund

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thereto, and all guaranteed bonds are aggregated for purposes of determining the capacity of the Guarantee Program (see “Capacity Limits for the Guarantee Program”). The Charter District Bond Guarantee Program as enacted by State law has not been reviewed by any court, nor has the Texas Attorney General been requested to issue an opinion, with respect to its constitutional validity. The sole purpose of the PSF is to assist in the funding of public education for present and future generations. Prior to the adoption of the Total Return Constitutional Amendment, all interest and dividends produced by Fund investments flowed into the Available School Fund (the “ASF”), where they are distributed to local school districts and open-enrollment charter schools based on average daily attendance. Any net gains from investments of the Fund accrue to the corpus of the PSF. Prior to the approval by the voters of the State of the Total Return Constitutional Amendment, costs of administering the PSF were allocated to the ASF. With the approval of the Total Return Constitutional Amendment, the administrative costs of the Fund have shifted from the ASF to the PSF. In fiscal year 2019, distributions to the ASF amounted to an estimated $306 per student and the total amount distributed to the ASF was $1,535.8 million. Audited financial information for the PSF is provided annually through the PSF Comprehensive Annual Financial Report (the “Annual Report”), which is filed with the Municipal Securities Rulemaking Board (“MSRB”). The Annual Report includes the Message of the Executive Administrator of the Fund (the “Message”) and the Management’s Discussion and Analysis (“MD&A”). The Annual Report for the year ended August 31, 2019, as filed with the MSRB in accordance with the PSF undertaking and agreement made in accordance with Rule 15c2-12 (“Rule 15c2-12”) of the federal Securities and Exchange Commission (the “SEC”), as described below, is hereby incorporated by reference into this disclosure. Information included herein for the year ended August 31, 2019 is derived from the audited financial statements of the PSF, which are included in the Annual Report as it is filed and posted. Reference is made to the Annual Report for the complete Message and MD&A for the year ended August 31, 2019 and for a description of the financial results of the PSF for the year ended August 31, 2019, the most recent year for which audited financial information regarding the Fund is available. The 2019 Annual Report speaks only as of its date and the TEA has not obligated itself to update the 2019 Annual Report or any other Annual Report. The TEA posts each Annual Report, which includes statistical data regarding the Fund as of the close of each fiscal year, the most recent disclosure for the Guarantee Program, the Statement of Investment Objectives, Policies and Guidelines of the Texas Permanent School Fund, which is codified at 19 Texas Administrative Code, Chapter 33 (the “Investment Policy”), monthly updates with respect to the capacity of the Guarantee Program (collectively, the “Web Site Materials”) on the TEA web site at http://tea.texas.gov/Finance_and_Grants/Permanent_School_Fund/ and with the MSRB at www.emma.msrb.org. Such monthly updates regarding the Guarantee Program are also incorporated herein and made a part hereof for all purposes. In addition to the Web Site Materials, the Fund is required to make quarterly filings with the SEC under Section 13(f) of the Securities Exchange Act of 1934. Such filings, which consist of a list of the Fund’s holdings of securities specified in Section 13(f), including exchange-traded (e.g., NYSE) or NASDAQ-quoted stocks, equity options and warrants, shares of closed-end investment companies and certain convertible debt securities, is available from the SEC at www.sec.gov/edgar.shtml. A list of the Fund’s equity and fixed income holdings as of August 31 of each year is posted to the TEA web site and filed with the MSRB. Such list excludes holdings in the Fund’s securities lending program. Such list, as filed, is incorporated herein and made a part hereof for all purposes. 2019 TEXAS LEGISLATIVE SESSION . . During the 86th Regular Session of the Texas Legislature, which concluded on May 27, 2019 (the “86th Session”), various bills were enacted that relate to the PSF. Among such enacted legislation are bills that relate to the composition of the SLB and its relationship to the SBOE with respect to the management of the PSF. Legislation was approved that will change the composition of the SLB to a five member board from a three member board. Under that bill, the Land Commissioner will continue to head the SLB, but the remaining four members will be appointed by the Governor, and of those four members, two are required to be selected from a list of nominees to be submitted to the Governor by the SBOE. That legislation also requires an annual joint meeting of the SLB and the SBOE for the purpose of discussing the allocation of the assets of the PSF and the investment of money in the PSF. Other enacted legislation requires the SLB and the SBOE to provide quarterly financial reports to each other and creates a “permanent school fund liquid account” in the PSF for the purpose of receiving funds transferred from the SLB on a quarterly basis that are not then invested by the SLB or needed within the forthcoming quarter for investment by the SBOE. Such funds shall be invested in liquid assets in the same manner that the PSF is managed until such time as the funds are required for investment by the SLB. That legislation also requires the Texas Education Agency, in consultation with the GLO, to conduct a study regarding distributions to the ASF from the PSF. In addition, a joint resolution was approved that proposed a constitutional amendment to the Texas Constitution to increase the permissible amount of distributions to the ASF from revenue derived during a year from PSF land or other properties from $300 million to $600 million annually by one or more entities. That constitutional change was approved by State voters at a referendum on November 5, 2019. See “2011 and 2019 Constitutional Amendments.” Other legislation enacted during the 86th Session provides for the winding up of the affairs of an open-enrollment charter school that ceases operations, including as a result of the revocation or other termination of its charter. In particular, among other provisions, the legislation addresses the disposition of real and personal property of a discontinued charter school and provides under certain circumstances for reimbursement to be made to the State, if the disposed property was acquired with State funds; authorizes the Commissioner to adopt a rule to govern related party transactions by charter schools; and creates a “charter school liquidation fund” for the management of any reclaimed State funds, including, in addition to other potential uses, for the use of deposit of such reclaimed funds to the Charter District Reserve Fund.

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No assessment has been made by the TEA or PSF staff as to the potential financial impact of any legislation enacted during the 86th Session, including the increase in the permissible amount that may be transferred from the PSF to the ASF, as approved by State voters at the November 5, 2019 referendum. THE TOTAL RETURN CONSTITUTIONAL AMENDMENT . . . The Total Return Constitutional Amendment approved a fundamental change in the way that distributions are made to the ASF from the PSF. The Total Return Constitutional Amendment requires that PSF distributions to the ASF be determined using a total-return-based formula instead of the current-income-based formula, which was used from 1964 to the end of the 2003 fiscal year. The Total Return Constitutional Amendment provides that the total amount distributed from the Fund to the ASF: (1) in each year of a State fiscal biennium must be an amount that is not more than 6% of the average of the market value of the Fund, excluding real property (the “Distribution Rate”), on the last day of each of the sixteen State fiscal quarters preceding the Regular Session of the Legislature that begins before that State fiscal biennium (the “Distribution Measurement Period”), in accordance with the rate adopted by: (a) a vote of two-thirds of the total membership of the State Board of Education (“SBOE”), taken before the Regular Session of the Legislature convenes or (b) the Legislature by general law or appropriation, if the SBOE does not adopt a rate as provided by clause (a); and (2) over the ten-year period consisting of the current State fiscal year and the nine preceding state fiscal years may not exceed the total return on all investment assets of the Fund over the same ten-year period (the “Ten Year Total Return”). In April 2009, the Attorney General issued a legal opinion, Op. Tex. Att’y Gen. No. GA-0707 (2009) (“GA-0707”), at the request of the Chairman of the SBOE with regard to certain matters pertaining to the Distribution Rate and the determination of the Ten Year Total Return. In GA-0707 the Attorney General opined, among other advice, that (i) the Ten Year Total Return should be calculated on an annual basis, (ii) a contingency plan adopted by the SBOE, to permit monthly transfers equal in aggregate to the annual Distribution Rate to be halted and subsequently made up if such transfers temporarily exceed the Ten Year Total Return, is not prohibited by State law, provided that such contingency plan applies only within a fiscal year time basis, not on a biennium basis, and (iii) that the amount distributed from the Fund in a fiscal year may not exceed 6% of the average of the market value of the Fund or the Ten Year Total Return. In accordance with GA-0707, in the event that the Ten Year Total Return is exceeded during a fiscal year, transfers to the ASF will be halted. However, if the Ten Year Total Return subsequently increases during that biennium, transfers may be resumed, if the SBOE has provided for that contingency, and made in full during the remaining period of the biennium, subject to the limit of 6% in any one fiscal year. Any shortfall in the transfer that results from such events from one biennium may not be paid over to the ASF in a subsequent biennium as the SBOE would make a separate payout determination for that subsequent biennium. In determining the Distribution Rate, the SBOE has adopted the goal of maximizing the amount distributed from the Fund in a manner designed to preserve “intergenerational equity.” Intergenerational equity is the maintenance of purchasing power to ensure that endowment spending keeps pace with inflation, with the ultimate goal being to ensure that current and future generations are given equal levels of purchasing power in real terms. In making this determination, the SBOE takes into account various considerations, and relies upon its staff and external investment consultant, which undertake analysis for long-term projection periods that includes certain assumptions. Among the assumptions used in the analysis are a projected rate of growth of the average daily scholastic attendance State-wide, the projected contributions and expenses of the Fund, projected returns in the capital markets and a projected inflation rate. See “2011 and 2019 Constitutional Amendments” below for a discussion of the historic and current Distribution Rates, and a description of amendments made to the Texas Constitution on November 8, 2011 and November 5, 2019 that may affect Distribution Rate decisions. Since the enactment of a prior amendment to the Texas Constitution in 1964, the investment of the Fund has been managed with the dual objectives of producing current income for transfer to the ASF and growing the Fund for the benefit of future generations. As a result of this prior constitutional framework, prior to the adoption of the 2004 asset allocation policy the investment of the Fund historically included a significant amount of fixed income investments and dividend-yielding equity investments, to produce income for transfer to the ASF. With respect to the management of the Fund’s financial assets portfolio, the single most significant change made to date as a result of the Total Return Constitutional Amendment has been new asset allocation policies adopted from time to time by the SBOE. The SBOE generally reviews the asset allocations during its summer meeting in even numbered years. The first asset allocation policy adopted by the SBOE following the Total Return Constitutional Amendment was in February 2004, and the policy was reviewed and modified or reaffirmed in the summers of each even-numbered year, most recently in 2018. The Fund’s investment policy provides for minimum and maximum ranges among the components of each of the asset classifications: equities, fixed income and alternative asset investments. The 2004 asset allocation policy decreased the fixed income target from 45% to 25% of Fund investment assets and increased the allocation for equities from 55% to 75% of investment assets. Subsequent asset allocation policies have continued to diversify Fund assets, and have added an alternative asset allocation to the fixed income and equity allocations. The alternative asset allocation category includes real estate, real return, absolute return and private equity components. Alternative asset classes diversify the SBOE-managed assets and are not as correlated to traditional asset classes, which is intended to increase investment returns over the long run while reducing risk and return volatility of the portfolio. The most recent asset allocation, from 2016, which was reviewed and reaffirmed in June 2018, is as follows: (i) an equity allocation of 35% (consisting of U.S. large cap equities targeted at 13%, international large cap equities at 14%, emerging market equities at 3%, and U.S. small/mid cap equities at 5%), (ii) a fixed income allocation of 19% (consisting of a 12% allocation for core bonds and a 7%

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allocation for emerging market debt in local currency), and (iii) an alternative asset allocation of 46% (consisting of a private equity allocation of 13%, a real estate allocation of 10%, an absolute return allocation of 10%, a risk parity allocation of 7% and a real return allocation of 6%). The 2016 asset allocation decreased U.S. large cap equities and international equities by 3% and 2%, respectively, and increased the allocations for private equity and real estate by 3% and 2%, respectively. In accordance with legislation enacted during the 86th Session and effective September 1, 2019, the PSF has established an investment account for purposes of investing cash received from the GLO to be invested in liquid assets and managed by the SBOE in the same manner it manages the PSF. That cash has previously been included in the PSF valuation, but was held and invested by the State Comptroller. For a variety of reasons, each change in asset allocation for the Fund, including the 2016 modifications, have been implemented in phases, and that approach is likely to be carried forward when and if the asset allocation policy is again modified. At August 31, 2019, the Fund’s financial assets portfolio was invested as follows: 34.91% in public market equity investments; 13.35% in fixed income investments; 10.58% in absolute return assets; 11.31% in private equity assets; 8.71% in real estate assets; 7.46% in risk parity assets; 6.16% in real return assets; 7.03% in emerging market debt; and 0.49% in unallocated cash. Following on previous decisions to create strategic relationships with investment managers in certain asset classes, in September 2015 and January 2016, the SBOE approved the implementation of direct investment programs in private equity and absolute return assets, respectively, which has continued to reduce administrative costs with respect to those portfolios. The Attorney General has advised the SBOE in Op. Tex. Att’y Gen. No. GA-0998 (2013) (“GA-0998”), that the PSF is not subject to requirements of certain State competitive bidding laws with respect to the selection of investments. In GA-0998, the Attorney General also advised that the SBOE generally must use competitive bidding for the selection of investment managers and other third party providers of investment services, such as record keeping and insurance, but excluding certain professional services, such as accounting services, as State law prohibits the use of competitive bidding for specified professional services. GA-0998 provides guidance to the SBOE in connection with the direct management of alternative investments through investment vehicles to be created by the SBOE, in lieu of contracting with external managers for such services, as has been the recent practice of the PSF. The PSF staff and the Fund’s investment advisor are tasked with advising the SBOE with respect to the implementation of the Fund's asset allocation policy, including the timing and manner of the selection of any external managers and other consultants. In accordance with the Texas Constitution, the SBOE views the PSF as a perpetual institution, and the Fund is managed as an endowment fund with a long-term investment horizon. Under the total-return investment objective, the Investment Policy provides that the PSF shall be managed consistently with respect to the following: generating income for the benefit of the public free schools of Texas, the real growth of the corpus of the PSF, protecting capital, and balancing the needs of present and future generations of Texas school children. As described above, the Total Return Constitutional Amendment restricts the annual pay-out from the Fund to the total-return on all investment assets of the Fund over a rolling ten-year period. State law provides that each transfer of funds from the PSF to the ASF is made monthly, with each transfer to be in the amount of one-twelfth of the annual distribution. The heavier weighting of equity securities and alternative assets relative to fixed income investments has resulted in greater volatility of the value of the Fund. Given the greater weighting in the overall portfolio of passively managed investments, it is expected that the Fund will reflect the general performance returns of the markets in which the Fund is invested. The asset allocation of the Fund’s financial assets portfolio is subject to change by the SBOE from time to time based upon a number of factors, including recommendations to the SBOE made by internal investment staff and external consultants, changes made by the SBOE without regard to such recommendations and directives of the Legislature. Fund performance may also be affected by factors other than asset allocation, including, without limitation, the general performance of the securities markets in the United States and abroad; political and investment considerations including those relating to socially responsible investing; economic impacts relating to domestic and international climate change; development of hostilities in and among nations; cybersecurity issues that affect the securities markets, changes in international trade policies, economic activity and investments, in general, application of the prudent person investment standard, which may eliminate certain investment opportunities for the Fund; management fees paid to external managers and embedded management fees for some fund investments; and limitations on the number and compensation of internal and external investment staff, which is subject to legislative oversight. The Guarantee Program could also be impacted by changes in State or federal law or the implementation of new accounting standards. MANAGEMENT AND ADMINISTRATION OF THE FUND . . .The Texas Constitution and applicable statutes delegate to the SBOE the authority and responsibility for investment of the PSF’s financial assets. In investing the Fund, the SBOE is charged with exercising the judgment and care under the circumstances then prevailing which persons of ordinary prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income therefrom as well as the probable safety of their capital. The SBOE has adopted a “Statement of Investment Objectives, Policies, and Guidelines of the Texas Permanent School Fund,” which is codified in the Texas Administrative Code beginning at 19 TAC section 33.1. The Total Return Constitutional Amendment provides that expenses of managing the PSF are to be paid “by appropriation” from the PSF. In January 2005, at the request of the SBOE, the Attorney General issued a legal opinion, Op. Tex. Att’y Gen. No. GA-0293 (2005), that the Total Return Constitutional Amendment requires that SBOE expenditures for managing or administering PSF investments, including payments to external investment managers, be paid from appropriations made by the Legislature, but that the Total Return Constitutional Amendment does not require the SBOE to pay from such appropriated PSF funds the indirect management costs deducted from the assets of a mutual fund or other investment company in which PSF funds have been invested.

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Texas law assigns control of the Fund’s land and mineral rights to the SLB. Administrative duties related to the land and mineral rights reside with the GLO, which is under the guidance of the Commissioner of the GLO. In 2007, the Legislature established the real estate special fund account of the PSF (the “Real Estate Account”) consisting of proceeds and revenue from land, mineral or royalty interest, real estate investment, or other interest, including revenue received from those sources, that is set apart to the PSF under the Texas Constitution and laws, together with the mineral estate in riverbeds, channels, and the tidelands, including islands. The investment of the Real Estate Account is subject to the sole and exclusive management and control of the SLB and the Land Commissioner, who is also the head of the GLO. The 2007 legislation presented constitutional questions regarding the respective roles of the SBOE and the SLB relating to the disposition of proceeds of real estate transactions to the ASF, among other questions. Amounts in the investment portfolio of the PSF are taken into account by the SBOE for purposes of determining the Distribution Rate. An amendment to the Texas Constitution was approved by State voters on November 8, 2011, which permits the SLB to make transfers directly to the ASF, see “2011 and 2019 Constitutional Amendments” below. The SBOE contracts with its securities custodial agent to measure the performance of the total return of the Fund’s financial assets. A consultant is typically retained for the purpose of providing consultation with respect to strategic asset allocation decisions and to assist the SBOE in selecting external fund management advisors. The SBOE also contracts with financial institutions for custodial and securities lending services. Like other State agencies and instrumentalities that manage large investment portfolios, the PSF has implemented an incentive compensation plan that may provide additional compensation for investment personnel, depending upon the criteria relating to the investment performance of the Fund. As noted above, the Texas Constitution and applicable statutes make the SBOE responsible for investment of the PSF’s financial assets. By law, the Commissioner is appointed by the Governor, with Senate confirmation, and assists the SBOE, but the Commissioner can neither be hired nor dismissed by the SBOE. The Executive Administrator of the Fund is also hired by and reports to the Commissioner. Moreover, although the Fund’s Executive Administrator and his staff implement the decisions of and provide information to the School Finance/PSF Committee of the SBOE and the full SBOE, the SBOE can neither select nor dismiss the Executive Administrator. TEA’s General Counsel provides legal advice to the Executive Administrator and to the SBOE. The SBOE has also engaged outside counsel to advise it as to its duties over the Fund, including specific actions regarding the investment of the PSF to ensure compliance with fiduciary standards, and to provide transactional advice in connection with the investment of Fund assets in non-traditional investments. CAPACITY LIMITS FOR THE GUARANTEE PROGRAM . . .The capacity of the Fund to guarantee bonds under the Guarantee Program is limited in two ways: by State law (the “State Capacity Limit”) and by regulations and a notice issued by the IRS (the “IRS Limit”). Prior to May 20, 2003, the State Capacity Limit was equal to two times the lower of cost or fair market value of the Fund’s assets, exclusive of real estate. During the 78th Regular Session of the Legislature in 2003, legislation was enacted that increased the State Capacity Limit by 25%, to two and one half times the lower of cost or fair market value of the Fund’s assets as estimated by the SBOE and certified by the State Auditor, and eliminated the real estate exclusion from the calculation. Prior to the issuance of the IRS Notice (defined below), the capacity of the program under the IRS Limit was limited to two and one-half times the lower of cost or fair market value of the Fund’s assets adjusted by a factor that excluded additions to the Fund made since May 14, 1989. During the 2007 Texas Legislature, Senate Bill 389 (“SB 389”) was enacted providing for additional increases in the capacity of the Guarantee Program, and specifically providing that the SBOE may by rule increase the capacity of the Guarantee Program from two and one-half times the cost value of the PSF to an amount not to exceed five times the cost value of the PSF, provided that the increased limit does not violate federal law and regulations and does not prevent bonds guaranteed by the Guarantee Program from receiving the highest available credit rating, as determined by the SBOE. SB 389 further provides that the SBOE shall at least annually consider whether to change the capacity of the Guarantee Program. From 2005 through 2009, the Guarantee Program twice reached capacity under the IRS Limit, and in each instance the Guarantee Program was closed to new bond guarantee applications until relief was obtained from the IRS. The most recent closure of the Guarantee Program commenced in March 2009 and the Guarantee Program reopened in February 2010 on the basis of receipt of the IRS Notice. On December 16, 2009, the IRS published Notice 2010-5 (the “IRS Notice”) stating that the IRS will issue proposed regulations amending the existing regulations to raise the IRS limit to 500% of the total cost of the assets held by the PSF as of December 16, 2009. In accordance with the IRS Notice, the amount of any new bonds to be guaranteed by the PSF, together with the then outstanding amount of bonds previously guaranteed by the PSF, must not exceed the IRS limit on the sale date of the new bonds to be guaranteed. The IRS Notice further provides that the IRS Notice may be relied upon for bonds sold on or after December 16, 2009, and before the effective date of future regulations or other public administrative guidance affecting funds like the PSF. On September 16, 2013, the IRS published proposed regulations (the “Proposed IRS Regulations”) that, among other things, would enact the IRS Notice. The preamble to the Proposed IRS Regulations provides that issuers may elect to apply the Proposed IRS Regulations, in whole or in part, to bonds sold on or after September 16, 2013, and before the date that final regulations become effective. On July 18, 2016, the IRS issued final regulations enacting the IRS Notice (the “Final IRS Regulations”). The Final IRS Regulations are effective for bonds sold on or after October 17, 2016. The IRS Notice, the Proposed IRS Regulations and the Final IRS Regulations establish a static capacity for the Guarantee Program based upon the cost value of Fund assets on December 16,

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2009 multiplied by five. On December 16, 2009, the cost value of the Guarantee Program was $23,463,730,608 (estimated and unaudited), thereby producing an IRS Limit of approximately $117.3 billion. The State Capacity Limit is determined on the basis of the cost value of the Fund from time to time multiplied by the capacity multiplier determined annually by the SBOE, but not to exceed a multiplier of five. The capacity of the Guarantee Program will be limited to the lower of the State Capacity Limit or the IRS Limit. On May 21, 2010, the SBOE modified the regulations that govern the School District Bond Guarantee Program (the “SDBGP Rules”), and increased the State Law Capacity to an amount equal to three times the cost value of the PSF. Such modified regulations, including the revised capacity rule, became effective on July 1, 2010. The SDBGP Rules provide that the Commissioner may reduce the multiplier to maintain the AAA credit rating of the Guarantee Program, but provide that any changes to the multiplier made by the Commissioner are to be ratified or rejected by the SBOE at the next meeting following the change. See “Valuation of the PSF and Guaranteed Bonds,” below. At its September 2015 meeting, the SBOE voted to modify the SDBGP Rules and the CDBGP Rules to increase the State Law Capacity from 3 times the cost value multiplier to 3.25 times. At that meeting, the SBOE also approved a new 5% capacity reserve for the Charter District Bond Guarantee Program. The change to the State Law Capacity became effective on February 1, 2016. At its November 2016 meeting, the SBOE again voted to increase the State Law Capacity and, in accordance with applicable requirements for the modification of SDBGP and CDBGP Rules, a second and final vote to approve the increase in the State Law Capacity occurred on February 3, 2017. As a result, the State Law Capacity increased from 3.25 times the cost value multiplier to 3.50 times effective March 1, 2017. At August 31, 2019, the State Law Capacity increased from $118,511,255,268 on August 31, 2018 to $123,509,204,770 on August 31, 2019 (but at such date the IRS Limit was lower, $117,318,653,038, so it is the currently effective capacity limit for the Fund). Since July 1991, when the SBOE amended the Guarantee Program Rules to broaden the range of bonds that are eligible for guarantee under the Guarantee Program to encompass most Texas school district bonds, the principal amount of bonds guaranteed under the Guarantee Program has increased sharply. In addition, in recent years a number of factors have caused an increase in the amount of bonds issued by school districts in the State. See the table “Permanent School Fund Guaranteed Bonds” below. Effective September 1, 2009, the Act provides that the SBOE may annually establish a percentage of the cost value of the Fund to be reserved from use in guaranteeing bonds. The capacity of the Guarantee Program in excess of any reserved portion is referred to herein as the “Capacity Reserve.” The SDBGP Rules provide for a minimum Capacity Reserve for the overall Guarantee Program of no less than 5%, and provide that the amount of the Capacity Reserve may be increased by a majority vote of the SBOE. The CDBGP Rules provide for an additional 5% reserve of CDBGP capacity. The Commissioner is authorized to change the Capacity Reserve, which decision must be ratified or rejected by the SBOE at its next meeting following any change made by the Commissioner. The current Capacity Reserve is noted in the monthly updates with respect to the capacity of the Guarantee Program on the TEA web site at http://tea.texas.gov/Finance_and_Grants/Permanent_School_Fund/, which are also filed with the MSRB. Based upon historical performance of the Fund, the legal restrictions relating to the amount of bonds that may be guaranteed has generally resulted in a lower ratio of guaranteed bonds to available assets as compared to many other types of credit enhancements that may be available for Texas school district bonds and charter district bonds. However, the ratio of Fund assets to guaranteed bonds and the growth of the Fund in general could be adversely affected by a number of factors, including changes in the value of the Fund due to changes in securities markets, investment objectives of the Fund, an increase in bond issues by school districts in the State or legal restrictions on the Fund, changes in State laws that implement funding decisions for school districts and charter districts, which could adversely affect the credit quality of those districts, the implementation of the Charter District Bond Guarantee Program, or an increase in the calculation base of the Fund for purposes of making transfers to the ASF. It is anticipated that the issuance of the IRS Notice and the Proposed IRS Regulations will likely result in a substantial increase in the amount of bonds guaranteed under the Guarantee Program. The implementation of the Charter School Bond Guarantee Program is also expected to increase the amount of guaranteed bonds. The Act requires that the Commissioner prepare, and the SBOE approve, an annual report on the status of the Guarantee Program (the Annual Report). The State Auditor audits the financial statements of the PSF, which are separate from other State financial statements. THE SCHOOL DISTRICT BOND GUARANTEE PROGRAM . . .The School District Bond Guarantee Program requires an application be made by a school district to the Commissioner for a guarantee of its bonds. If the conditions for the School District Bond Guarantee Program are satisfied, the guarantee becomes effective upon approval of the bonds by the Attorney General and remains in effect until the guaranteed bonds are paid or defeased, by a refunding or otherwise. In the event of default, holders of guaranteed school district bonds will receive all payments due from the corpus of the PSF. Following a determination that a school district will be or is unable to pay maturing or matured principal or interest on any guaranteed bond, the Act requires the school district to notify the Commissioner not later than the fifth day before the stated maturity date of such bond or interest payment. Immediately following receipt of such notice, the Commissioner must cause to be transferred from the appropriate account in the PSF to the Paying Agent/Registrar an amount necessary to pay the maturing or matured principal and interest. Upon receipt of funds for payment of such principal or interest, the Paying Agent/Registrar must pay the amount due and forward the canceled bond or evidence of payment of the interest to the State Comptroller of Public

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Accounts (the “Comptroller”). The Commissioner will instruct the Comptroller to withhold the amount paid, plus interest, from the first State money payable to the school district. The amount withheld pursuant to this funding “intercept” feature will be deposited to the credit of the PSF. The Comptroller must hold such canceled bond or evidence of payment of the interest on behalf of the PSF. Following full reimbursement of such payment by the school district to the PSF with interest, the Comptroller will cancel the bond or evidence of payment of the interest and forward it to the school district. The Act permits the Commissioner to order a school district to set a tax rate sufficient to reimburse the PSF for any payments made with respect to guaranteed bonds, and also sufficient to pay future payments on guaranteed bonds, and provides certain enforcement mechanisms to the Commissioner, including the appointment of a board of managers or annexation of a defaulting school district to another school district. If a school district fails to pay principal or interest on a bond as it is stated to mature, other amounts not due and payable are not accelerated and do not become due and payable by virtue of the district’s default. The School District Bond Guarantee Program does not apply to the payment of principal and interest upon redemption of bonds, except upon mandatory sinking fund redemption, and does not apply to the obligation, if any, of a school district to pay a redemption premium on its guaranteed bonds. The guarantee applies to all matured interest on guaranteed school district bonds, whether the bonds were issued with a fixed or variable interest rate and whether the interest rate changes as a result of an interest reset provision or other bond order provision requiring an interest rate change. The guarantee does not extend to any obligation of a school district under any agreement with a third party relating to guaranteed bonds that is defined or described in State law as a “bond enhancement agreement” or a “credit agreement,” unless the right to payment of such third party is directly as a result of such third party being a bondholder. In the event that two or more payments are made from the PSF on behalf of a district, the Commissioner shall request the Attorney General to institute legal action to compel the district and its officers, agents and employees to comply with the duties required of them by law in respect to the payment of guaranteed bonds. Generally, the SDBGP Rules limit guarantees to certain types of notes and bonds, including, with respect to refunding bonds issued by school districts, a requirement that the bonds produce debt service savings, and that bonds issued for capital facilities of school districts must have been voted as unlimited tax debt of the issuing district. The Guarantee Program Rules include certain accreditation criteria for districts applying for a guarantee of their bonds, and limit guarantees to districts that have less than the amount of annual debt service per average daily attendance that represents the 90th percentile of annual debt service per average daily attendance for all school districts, but such limitation will not apply to school districts that have enrollment growth of at least 25% over the previous five school years. The SDBGP Rules are codified in the Texas Administrative Code at 19 TAC section 33.65, and are available at http://ritter.tea.state.tx.us/rules/tac/chapter033/ch033a.html#33.65. CHARTER DISTRICT RISK FACTORS . . . The Charter District Bond Guarantee Program became effective March 3, 2014. The SBOE published final regulations in the Texas Register that provide for the administration of the Charter District Bond Guarantee Program (the “CDBGP Rules”). The CDBGP Rules are codified at 19 TAC section 33.67, and are available at http://ritter.tea.state.tx.us/rules/tac/chapter033/ch033a.html#33.67. The Charter District Bond Guarantee Program has been authorized through the enactment of amendments to the Act, which provide that a charter holder may make application to the Commissioner for designation as a “charter district” and for a guarantee by the PSF under the Act of bonds issued on behalf of a charter district by a non-profit corporation. If the conditions for the Charter District Bond Guarantee Program are satisfied, the guarantee becomes effective upon approval of the bonds by the Attorney General and remains in effect until the guaranteed bonds are paid or defeased, by a refunding or otherwise. As of February 27, 2019 (the most recent date for which data is available), the percentage of students enrolled in open-enrollment charter schools (excluding charter schools authorized by school districts) to the total State scholastic census was approximately 5.85%. As January 31, 2020, there were 183 active open-enrollment charter schools in the State and there were 788 charter school campuses operating under such charters (though as of such date, two of such campuses are not currently serving students for various reasons). Section 12.101, Texas Education Code, as amended by the Legislature in 2013, limits the number of charters that the Commissioner may grant to 215 charters as of the end of fiscal year 2014, with the number increasing in each fiscal year thereafter through 2019 to a total number of 305 charters. While legislation limits the number of charters that may be granted, it does not limit the number of campuses that may operate under a particular charter. For information regarding the capacity of the Guarantee Program, see “Capacity Limits for the Guarantee Program.” The Act provides that the Commissioner may not approve the guarantee of refunding or refinanced bonds under the Charter District Bond Guarantee Program in a total amount that exceeds one-half of the total amount available for the guarantee of charter district bonds under the Charter District Bond Guarantee Program. In accordance with the Act, the Commissioner may not approve charter district bonds for guarantee if such guarantees will result in lower bond ratings for public school district bonds that are guaranteed under the School District Bond Guarantee Program. To be eligible for a guarantee, the Act provides that a charter district's bonds must be approved by the Attorney General, have an unenhanced investment grade rating from a nationally recognized investment rating firm, and satisfy a limited investigation conducted by the TEA.

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The Charter District Bond Guarantee Program does not apply to the payment of principal and interest upon redemption of bonds, except upon mandatory sinking fund redemption, and does not apply to the obligation, if any, of a charter district to pay a redemption premium on its guaranteed bonds. The guarantee applies to all matured interest on guaranteed charter district bonds, whether the bonds were issued with a fixed or variable interest rate and whether the interest rate changes as a result of an interest reset provision or other bond resolution provision requiring an interest rate change. The guarantee does not extend to any obligation of a charter district under any agreement with a third party relating to guaranteed bonds that is defined or described in State law as a “bond enhancement agreement” or a “credit agreement,” unless the right to payment of such third party is directly as a result of such third party being a bondholder. The Act provides that immediately following receipt of notice that a charter district will be or is unable to pay maturing or matured principal or interest on a guaranteed bond, the Commissioner is required to instruct the Comptroller to transfer from the Charter District Reserve Fund to the district's paying agent an amount necessary to pay the maturing or matured principal or interest. If money in the Charter District Reserve Fund is insufficient to pay the amount due on a bond for which a notice of default has been received, the Commissioner is required to instruct the Comptroller to transfer from the PSF to the district's paying agent the amount necessary to pay the balance of the unpaid maturing or matured principal or interest. If a total of two or more payments are made under the Charter District Bond Guarantee Program on charter district bonds and the Commissioner determines that the charter district is acting in bad faith under the program, the Commissioner may request the Attorney General to institute appropriate legal action to compel the charter district and its officers, agents, and employees to comply with the duties required of them by law in regard to the guaranteed bonds. As is the case with the School District Bond Guarantee Program, the Act provides a funding “intercept” feature that obligates the Commissioner to instruct the Comptroller to withhold the amount paid with respect to the Charter District Bond Guarantee Program, plus interest, from the first State money payable to a charter district that fails to make a guaranteed payment on its bonds. The amount withheld will be deposited, first, to the credit of the PSF, and then to restore any amount drawn from the Charter District Reserve Fund as a result of the non-payment. The CDBGP Rules provide that the PSF may be used to guarantee bonds issued for the acquisition, construction, repair, or renovation of an educational facility for an open-enrollment charter holder and equipping real property of an open-enrollment charter school and/or to refinance promissory notes executed by an open-enrollment charter school, each in an amount in excess of $500,000 the proceeds of which loans were used for a purpose described above (so-called new money bonds) or for refinancing bonds previously issued for the charter school that were approved by the attorney general (so-called refunding bonds). Refunding bonds may not be guaranteed under the Charter District Bond Guarantee Program if they do not result in a present value savings to the charter holder. The CDBGP Rules provide that an open-enrollment charter holder applying for charter district designation and a guarantee of its bonds under the Charter District Bond Guarantee Program satisfy various provisions of the regulations, including the following: It must (i) have operated at least one open-enrollment charter school with enrolled students in the State for at least three years; (ii) agree that the bonded indebtedness for which the guarantee is sought will be undertaken as an obligation of all entities under common control of the open-enrollment charter holder, and that all such entities will be liable for the obligation if the open-enrollment charter holder defaults on the bonded indebtedness, provided, however, that an entity that does not operate a charter school in Texas is subject to this provision only to the extent it has received state funds from the open-enrollment charter holder; (iii) have had completed for the past three years an audit for each such year that included unqualified or unmodified audit opinions; and (iv) have received an investment grade credit rating within the last year. Upon receipt of an application for guarantee under the Charter District Bond Guarantee Program, the Commissioner is required to conduct an investigation into the financial status of the applicant charter district and of the accreditation status of all open-enrollment charter schools operated under the charter, within the scope set forth in the CDBGP Rules. Such financial investigation must establish that an applying charter district has a historical debt service coverage ratio, based on annual debt service, of at least 1.1 for the most recently completed fiscal year, and a projected debt service coverage ratio, based on projected revenues and expenses and maximum annual debt service, of at least 1.2. The failure of an open-enrollment charter holder to comply with the Act or the applicable regulations, including by making any material misrepresentations in the charter holder's application for charter district designation or guarantee under the Charter District Bond Guarantee Program, constitutes a material violation of the open-enrollment charter holder's charter. From time to time, TEA has limited new guarantees under the Charter District Bond Guarantee Program to conform to capacity limits specified by the Act. Legislation enacted during the Legislature’s 2017 regular session modified the manner of calculating the capacity of the Charter District Bond Guarantee Program (the “CDBGP Capacity”), which further increased the amount of the CDBGP Capacity, beginning with State fiscal year 2018, but that provision of the law does not increase overall Program capacity, it merely allocates capacity between the School District Bond Guarantee Program and the Charter District Bond Guarantee Program. See “Capacity Limits for the Guarantee Program” and “2017 Legislative Changes to the Charter District Bond Guarantee Program.” Other factors that could increase the CDBGP Capacity include Fund investment performance, future increases in the Guarantee Program multiplier, changes in State law that govern the calculation of the CDBGP Capacity, as described below, growth in the relative percentage of students enrolled in open-enrollment charter schools to the total State scholastic census, legislative and administrative changes in funding for charter districts, changes in level of school district or charter district participation in the Program, or a combination of such circumstances.

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2017 LEGISLATIVE CHANGES TO THE CHARTER DISTRICT BOND GUARANTEE PROGRAM. . .The CDBGP Capacity is established by the Act. During the 85th Texas Legislature, which concluded on May 29, 2017, Senate Bill 1480 (“SB 1480”) was enacted. The complete text of SB 1480 can be found at http://www.capitol.state.tx.us/tlodocs/85R/billtext/pdf/SB01480F.pdf#navpanes=0. SB 1480 modified how the CDBGP Capacity will be established under the Act effective as of September 1, 2017, and made other substantive changes to the Act that affects the Charter District Bond Guarantee Program. Prior to the enactment of SB 1480, the CDBGP Capacity was calculated as the State Capacity Limit less the amount of outstanding bond guarantees under the Guarantee Program multiplied by the percentage of charter district scholastic population relative to the total public school scholastic population. As of August 31, 2019, the amount of outstanding bond guarantees represented 71.94% of the IRS Limit (which is currently the applicable capacity limit) for the Guarantee Program (based on unaudited data). SB 1480 amended the CDBGP Capacity calculation so that the State Capacity Limit is multiplied by the percentage of charter district scholastic population relative to the total public school scholastic population prior to the subtraction of the outstanding bond guarantees, thereby potentially substantially increasing the CDBGP Capacity. However, certain provisions of SB 1480, described below, and other additional factors described herein, could result in less than the maximum amount of the potential increase provided by SB 1480 being implemented by the SBOE or otherwise used by charter districts. Still other factors used in determining the CDBGP Capacity, such as the percentage of the charter district scholastic population to the overall public school scholastic population, could, in and of itself, increase the CDBGP Capacity, as that percentage has grown from 3.53% in September, 2012 to 5.85% in February 2019. TEA is unable to predict how the ratio of charter district students to the total State scholastic population will change over time. SB 1480 provides that the implementation of the new method of calculating the CDBGP Capacity will begin with the State fiscal year that commences September 1, 2021 (the State’s fiscal year 2022). However, for the intervening four fiscal years, beginning with fiscal year 2018, SB 1480 provides that the SBOE may establish a CDBGP Capacity that increases the amount of charter district bonds that may be guaranteed by up to a cumulative 20% in each fiscal year (for a total maximum increase of 80% in fiscal year 2021) as compared to the capacity figure calculated under the Act as of January 1, 2017. However, SB 1480 provides that in making its annual determination of the magnitude of an increase for any year, the SBOE may establish a lower (or no) increase if the SBOE determines that an increase in the CDBGP Capacity would likely result in a negative impact on the bond ratings for the Bond Guarantee Program (see “Ratings of Bonds Guaranteed Under the Guarantee Program”) or if one or more charter districts default on payment of principal or interest on a guaranteed bond, resulting in a negative impact on the bond ratings of the Bond Guarantee Program. The provisions of SB 1480 that provide for discretionary, incremental increases in the CDBGP expire September 1, 2022. If the SBOE makes a determination for any year based upon the potential ratings impact on the Bond Guarantee Program and modifies the increase that would otherwise be implemented under SB 1480 for that year, the SBOE may also make appropriate adjustments to the schedule for subsequent years to reflect the modification, provided that the CDBGP Capacity for any year may not exceed the limit provided in the schedule set forth in SB 1480. In September 2017 and June 2018, the SBOE authorized the full 20% increase in the amount of charter district bonds that may be guaranteed for fiscal years 2018 and 2019, respectively, which increases the relative capacity of the Charter District Bond Guarantee Program to the School District Bond Guarantee Program for those fiscal years. Taking into account the enactment of SB 1480 and the increase in the CDBGP Capacity effected thereby, at the Winter 2018 meeting the SBOE determined not to implement a previously approved multiplier increase to 3.75 times market value, opting to increase the multiplier to 3.50 times effective in late March 2018. In addition to modifying the manner of determining the CDBGP Capacity, SB 1480 provides that the Commissioner, in making a determination as to whether to approve a guarantee for a charter district, may consider any additional reasonable factor that the Commissioner determines to be necessary to protect the Bond Guarantee Program or minimize risk to the PSF, including: (1) whether the charter district had an average daily attendance of more than 75 percent of its student capacity for each of the preceding three school years, or for each school year of operation if the charter district has not been in operation for the preceding three school years; (2) the performance of the charter district under certain performance criteria set forth in Education Code Sections 39.053 and 39.054; and (3) any other indicator of performance that could affect the charter district's financial performance. Also, SB 1480 provides that the Commissioner's investigation of a charter district application for guarantee may include an evaluation of whether the charter district bond security documents provide a security interest in real property pledged as collateral for the bond and the repayment obligation under the proposed guarantee. The Commissioner may decline to approve the application if the Commissioner determines that sufficient security is not provided. The Act and the CDBGP Rules previously required the Commissioner to make an investigation of the accreditation status and certain financial criteria for a charter district applying for a bond guarantee, which remain in place. Since the initial authorization of the Charter District Bond Guarantee Program, the Act has established a bond guarantee reserve fund in the State treasury (the “Charter District Reserve Fund”). Formerly, the Act provided that each charter district that has a bond guaranteed must annually remit to the Commissioner, for deposit in the Charter District Reserve Fund, an amount equal to 10 percent of the savings to the charter district that is a result of the lower interest rate on its bonds due to the guarantee by the PSF. SB 1480 modified the Act insofar as it pertains to the Charter District Reserve Fund. Effective September 1, 2017, the Act provides that a charter district that has a bond guaranteed must remit to the Commissioner, for deposit in the Charter District Reserve Fund, an amount equal to 20 percent of the savings to the charter district that is a result of the lower interest rate on the bond due to the guarantee by the PSF. The amount due shall be paid on receipt by the charter district of the bond proceeds. However, the deposit requirement will not apply if the balance of the Charter District Reserve Fund is at least equal to three percent

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(3.00%) of the total amount of outstanding guaranteed bonds issued by charter districts. As of December 31, 2019, the Charter District Reserve Fund contained $35,096,557, which represented approximately 1.48% of the guaranteed charter district bonds. SB 1480 also authorized the SBOE to manage the Charter District Reserve Fund in the same manner as it manages the PSF. Previously, the Charter District Reserve Fund was held by the Comptroller, but effective April 1, 2018, the management of the Reserve Fund was transferred to the PSF division of TEA, where it will be held and invested as a non-commingled fund under the administration of the PSF staff. CHARTER DISTRICT RISK FACTORS . . .Open-enrollment charter schools in the State may not charge tuition and, unlike school districts, charter districts have no taxing power. Funding for charter district operations is largely from amounts appropriated by the Legislature. The amount of such State payments a charter district receives is based on a variety of factors, including the enrollment at the schools operated by a charter district. The overall amount of education aid provided by the State for charter schools in any year is also subject to appropriation by the Legislature. The Legislature may base its decisions about appropriations for charter schools on many factors, including the State's economic performance. Further, because some public officials, their constituents, commentators and others have viewed charter schools as controversial, political factors may also come to bear on charter school funding, and such factors are subject to change. Other than credit support for charter district bonds that is provided to qualifying charter districts by the Charter District Bond Guarantee Program, State funding for charter district facilities construction is limited to a program established by the Legislature in 2017, which provides $60 million per year for eligible charter districts with an acceptable performance rating for a variety of funding purposes, including for lease or purchase payments for instructional facilities. Since State funding for charter facilities is so limited, charter schools generally issue revenue bonds to fund facility construction and acquisition, or fund facilities from cash flows of the school. Some charter districts have issued non-guaranteed debt in addition to debt guaranteed under the Charter District Bond Guarantee Program, and such non-guaranteed debt is likely to be secured by a deed of trust covering all or part of the charter district’s facilities. In March 2017, the TEA began requiring charter districts to provide the TEA with a lien against charter district property as a condition to receiving a guarantee under the Charter District Bond Guarantee Program. However, charter district bonds issued and guaranteed under the Charter District Bond Guarantee Program prior to the implementation of the new requirement did not have the benefit of a security interest in real property, although other existing debts of such charter districts that are not guaranteed under the Charter District Bond Guarantee Program may be secured by real property that could be foreclosed on in the event of a bond default. The maintenance of a State-granted charter is dependent upon on-going compliance with State law and TEA regulations, and TEA monitors compliance with applicable standards. TEA has a broad range of enforcement and remedial actions that it can take as corrective measures, and such actions may include the loss of the State charter, the appointment of a new board of directors to govern a charter district, the assignment of operations to another charter operator, or, as a last resort, the dissolution of an open-enrollment charter school. As described above, the Act includes a funding “intercept” function that applies to both the School District Bond Guarantee Program and the Charter District Bond Guarantee Program. However, school districts are viewed as the “educator of last resort” for students residing in the geographical territory of the district, which makes it unlikely that State funding for those school districts would be discontinued, although the TEA can require the dissolution and merger into another school district if necessary to ensure sound education and financial management of a school district. That is not the case with a charter district, however, and open-enrollment charter schools in the State have been dissolved by TEA from time to time. If a charter district that has bonds outstanding that are guaranteed by the Charter District Bond Guarantee Program should be dissolved, debt service on guaranteed bonds of the district would continue to be paid to bondholders in accordance with the Charter District Bond Guarantee Program, but there would be no funding available for reimbursement of the PSF by the Comptroller for such payments. As described under “The Charter District Bond Guarantee Program,” the Act establishes a Charter District Reserve Fund, which could in the future be a significant reimbursement resource for the PSF.

POTENTIAL IMPACT OF HURRICANE HARVEY ON THE PSF . . .Hurricane Harvey struck coastal Texas on August 26, 2017, resulting in historic levels of rainfall. The Governor designated the impacted area for disaster relief, and TEA believes that the storm impacted more than 1.3 million students enrolled in some 157 school districts, and approximately 58,000 students in 27 charter schools in the designated area. It is possible that the affected districts will need to borrow to repair or replace damaged facilities, which could require increased bond issuance and applications to the TEA for PSF bond guarantees. In addition, the storm damage and any lingering economic damage in the area could adversely affect the tax base (for school districts) and credit quality of school districts and charter districts with bonds that are or will be guaranteed by the PSF. Many of the school districts and two charter districts in the designated disaster area have bonds guaranteed by the PSF. TEA notes that no district has applied for financial exigency or failed to timely pay bond payments as a result of the hurricane or otherwise. Legislation was approved during the 86th Session that provides supplemental appropriations to the TEA in amounts of $535,200,000 and $636,000,000 for the fiscal biennia ending August 31, 2019 and August 31, 2021, respectively. Those appropriations are designated for use as an adjustment to school district property values and reimbursement for disaster remediation costs as a result of Hurricane Harvey. That legislation also included a reimbursement to the TEA in the amount of $271,300,000 for costs previously incurred by the TEA for increased student costs, the reduction in school district property values and other disaster remediation costs stemming from Hurricane Harvey.

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RATINGS OF BONDS GUARANTEED UNDER THE GUARANTEE PROGRAM . . . Moody’s Investors Service, S&P Global Ratings and Fitch Ratings rate bonds guaranteed by the PSF “Aaa,” “AAA” and “AAA,” respectively. Not all districts apply for multiple ratings on their bonds, however. See “Ratings” herein. VALUATION OF THE PSF AND GUARANTEED BONDS

Permanent School Fund Valuations

Fiscal Year Ended 8/31

Book Value(1)

Market Value(1)

2015 $29,081,052,900 $36,196,265,273

2016 30,128,037,903 37,279,799,335

2017 31,870,581,428 41,438,672,573

2018 33,860,358,647 44,074,197,940

2019(2) 35,288,344,219 46,464,447,981

________ (1) SLB managed assets are included in the market value and book value of the Fund. In determining the market value of the PSF from time to time during a fiscal year, the TEA uses current, unaudited values for TEA managed investment portfolios and cash held by the SLB. With respect to SLB managed assets shown in the table above, market values of land and mineral interests, internally managed real estate, investments in externally managed real estate funds and cash are based upon information reported to the PSF by the SLB. The SLB reports that information to the PSF on a quarterly basis. The valuation of such assets at any point in time is dependent upon a variety of factors, including economic conditions in the State and nation in general, and the values of these assets, and, in particular, the valuation of mineral holdings administered by the SLB, can be volatile and subject to material changes from period to period. (2) At August 31, 2019, mineral assets, sovereign and other lands and internally managed discretionary real estate, external discretionary real estate investments, domestic equities, and cash managed by the SLB had book values of approximately $13.4 million, $216.7 million, $3,640.2 million, $7.5 million, and $4,457.3 million, respectively, and market values of approximately $3,198.2 million, $619.7 million, $3,927.6 million, $1.3 million, and $4,457.3 million, respectively. At December 31, 2019, the PSF had a book value of $35,402,400,338 and a market value of $48,020,026,798. December 31, 2019 values are based on unaudited data, which is subject to adjustment.

Permanent School Fund Guaranteed Bonds At 8/31 Principal Amount(1)

2015 $63,955,449,047

2016 68,303,328,445

2017 74,266,090,023

2018 79,080,901,069

2019 84,397,900,203(2)

________ (1) Represents original principal amount; does not reflect any subsequent accretions in value for compound interest bonds (zero coupon securities). The amount shown excludes bonds that have been refunded and released from the Guarantee Program. The TEA does not maintain records of the accreted value of capital appreciation bonds that are guaranteed under the Guarantee Program. (2) As of August 31, 2019 (the most recent date for which such data is available), the TEA expected that the principal and interest to be paid by school districts and charter districts over the remaining life of the bonds guaranteed by the Guarantee Program was $133,188,149,265, of which $48,790,249,062 represents interest to be paid. As shown in the table above, at August 31, 2019, there were $84,397,900,203 in principal amount of bonds guaranteed under the Guarantee Program, and using the IRS Limit at that date of $117,318,653,038 (the IRS Limit is currently the lower of the two federal and State capacity limits of Program capacity), 97.22% of Program capacity was available to the School District Bond Guarantee Program and 2.78% was available to the Charter District Bond Guarantee Program.


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Permanent School Fund Guaranteed Bonds by Category(1) School District Bonds Charter District Bonds Totals

Fiscal Year Ended 8/31

No. of Issues

Principal Amount

No. of Issues Principal Amount

No. of Issues

Principal Amount

2015 3,089 $63,197,514,047 28 $ 757,935,000 3,117 $63,955,449,047

2016 3,244 67,342,303,445 35 961,025,000 3,279 68,303,328,445

2017 3,253 72,884,480,023 40 1,381,610,000 3,293 74,266,090,023 2018 3,249 77,647,966,069 44 1,432,935,000 3,293 79,080,901,069

2019(2) 3,297 82,537,755,203 49 1,860,145,000 3,346 84,397,900,203

________ (1) Represents original principal amount; does not reflect any subsequent accretions in value for compound interest bonds (zero coupon securities). The amount shown excludes bonds that have been refunded and released from the Guarantee Program. (2) At December 31, 2019 (based on unaudited data, which is subject to adjustment), there were $88,291,231,320 of bonds guaranteed under the Guarantee Program, representing 3,401 school district issues, aggregating $85,920,336,320 in principal amount and 54 charter district issues, aggregating $2,370,895,000 in principal amount. At December 31, 2019, the capacity allocation of the Charter District Bond Guarantee Program was $4,350,476,526 (based on unaudited data, which is subject to adjustment). DISCUSSION AND ANALYSIS PERTAINING TO FISCAL YEAR ENDED AUGUST 31, 2019 . . . The following discussion is derived from the Annual Report for the year ended August 31, 2019, including the Message of the Executive Administrator of the Fund and the Management’s Discussion and Analysis contained therein. Reference is made to the Annual Report, as filed with the MSRB, for the complete Message and MD&A. Investment assets managed by the fifteen member SBOE are referred to throughout this MD&A as the PSF(SBOE) assets. As of August 31, 2019, the Fund’s land, mineral rights and certain real assets are managed by the three-member SLB and these assets are referred to throughout as the PSF(SLB) assets. The current PSF asset allocation policy includes an allocation for real estate investments, and as such investments are made, and become a part of the PSF investment portfolio, those investments will be managed by the SBOE and not the SLB. At the end of fiscal 2019, the Fund balance was $46.5 billion, an increase of $2.4 billion from the prior year. This increase is primarily due to overall increases in value of all asset classes in which the Fund has invested and restatements of fund balance. During the year, the SBOE continued implementing the long-term strategic asset allocation, diversifying the PSF(SBOE) to strengthen the Fund. The asset allocation is projected to increase returns over the long run while reducing risk and portfolio return volatility. The PSF(SBOE) annual rates of return for the one-year, five-year, and ten-year periods ending August 31, 2019, net of fees, were 4.17%, 5.25% and 8.18%, respectively (total return takes into consideration the change in the market value of the Fund during the year as well as the interest and dividend income generated by the Fund’s investments). In addition, the SLB continued its shift into externally managed real asset investment funds, and the one-year, five-year, and ten-year annualized total returns for the PSF(SLB) externally managed real assets, net of fees and including cash, were 5.84%, 6.13%, and 6.41%, respectively. The market value of the Fund’s assets is directly impacted by the performance of the various financial markets in which the assets are invested. The most important factors affecting investment performance are the asset allocation decisions made by the SBOE and SLB. The current SBOE long term asset allocation policy allows for diversification of the PSF(SBOE) portfolio into alternative asset classes whose returns are not as positively correlated as traditional asset classes. The implementation of the long term asset allocation will occur over several fiscal years and is expected to provide incremental total return at reduced risk. As of August 31, 2019, the PSF(SBOE) portion of the Fund had diversified into emerging market and large cap international equities, absolute return funds, real estate, private equity, risk parity, real return Treasury Inflation-Protected Securities, real return commodities, and emerging market debt. As of August 31, 2019, the SBOE has approved and the Fund made capital commitments to externally managed real estate investment funds in a total amount of $5.1 billion and capital commitments to private equity limited partnerships for a total of $6.3 billion. Unfunded commitments at August 31, 2019, totaled $1.9 billion in real estate investments and $2.3 billion in private equity investments. The PSF(SLB) portfolio is generally characterized by three broad categories: (1) discretionary real assets investments, (2) sovereign and other lands, and (3) mineral interests. Discretionary real assets investments consist of externally managed real estate, infrastructure, and energy/minerals investment funds; internally managed direct real estate investments, and cash. Sovereign and other lands consist primarily of the lands set aside to the PSF when it was created. Mineral interests consist of all of the minerals that are associated with PSF lands. The investment focus of PSF(SLB) discretionary real assets investments has shifted from internally managed direct real estate investments to externally managed real assets investment funds. The PSF(SLB) makes investments in certain limited partnerships that legally commit it to possible future capital contributions. At August 31, 2019, the remaining commitments totaled approximately $2.5 billion.

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The PSF(SBOE)’s investment in domestic large cap, domestic small/mid cap, international large cap, and emerging market equity securities experienced returns, net of fees, of 3.14%, -8.99%, -2.93%, and -4.15%, respectively, during the fiscal year ended August 31, 2019. The PSF(SBOE)’s investment in domestic fixed income securities produced a return of 10.54% during the fiscal year and absolute return investments yielded a return of 2.28%. The PSF(SBOE) real estate and private equity investments returned 7.22% and 11.93%, respectively. Risk parity assets produced a return of 10.89%, while real return assets yielded 0.71%. Emerging market debt produced a return of 10.40%. Combined, all PSF(SBOE) asset classes produced an investment return, net of fees, of 4.17% for the fiscal year ended August 31, 2019, out-performing the benchmark index of 3.76% by approximately 41 basis points. All PSF(SLB) externally managed investments (including cash) returned 6.41% net of fees for the fiscal year ending August 31, 2019. For fiscal year 2019, total revenues, inclusive of unrealized gains and losses and net of security lending rebates and fees, totaled $3.7 billion, a decrease of $0.3 billion from fiscal year 2018 earnings of $4.0 billion. This decrease reflects the performance of the securities markets in which the Fund was invested in fiscal year 2019. In fiscal year 2019, revenues earned by the Fund included lease payments, bonuses and royalty income received from oil, gas and mineral leases; lease payments from commercial real estate; surface lease and easement revenues; revenues from the resale of natural and liquid gas supplies; dividends, interest, and securities lending revenues; the net change in the fair value of the investment portfolio; and, other miscellaneous fees and income. Expenditures are paid from the Fund before distributions are made under the total return formula. Such expenditures include the costs incurred by the SLB to manage the land endowment, as well as operational costs of the Fund, including external management fees paid from appropriated funds. Total operating expenditures, net of security lending rebates and fees, decreased 10.0% for the fiscal year ending August 31, 2019. This decrease is primarily attributable to a decrease in PSF(SLB) quantities of purchased gas for resale in the State Energy Management Program, which is administered by the SLB as part of the Fund. The Fund supports the public school system in the State by distributing a predetermined percentage of its asset value to the ASF. For fiscal years 2018 and 2019, the distribution from the SBOE to the ASF totaled $1.2 billion and $1.2 billion, respectively. Distributions from the SLB to the ASF for fiscal years 2018 and 2019 totaled $0 and $300 million, respectively. At the end of the 2019 fiscal year, PSF assets guaranteed $84.4 billion in bonds issued by 863 local school districts and charter districts, the latter of which entered into the Program during the 2014 fiscal year. Since its inception in 1983, the Fund has guaranteed 7,443 school district and charter district bond issues totaling $186.2 billion in principal amount. During the 2019 fiscal year, the number of outstanding issues guaranteed under the Guarantee Program totaled 3,346. The dollar amount of guaranteed school and charter bond issues outstanding increased by $5.3 billion or 6.7%. The State Capacity Limit increased by $5.0 billion, or 4.2%, during fiscal year 2019 due to continued growth in the cost basis of the Fund used to calculate that Program capacity limit. The effective capacity of the Program did not increase during fiscal year 2019 as the IRS Limit was reached during the prior fiscal year, and it is the lower of the two State and federal capacity limits for the Program. 2011 AND 2019 CONSTITUTIONAL AMENDMENTS . . .On November 8, 2011, a referendum was held in the State as a result of legislation enacted that year that proposed amendments to various sections of the Texas Constitution pertaining to the PSF. At that referendum, voters of State approved non-substantive changes to the Texas Constitution to clarify references to the Fund, and, in addition, approved amendments that effected an increase to the base amount used in calculating the Distribution Rate from the Fund to the ASF, and authorized the SLB to make direct transfers to the ASF, as described below. The amendments approved at the referendum included an increase to the base used to calculate the Distribution Rate by adding to the calculation base certain discretionary real assets and cash in the Fund that is managed by entities other than the SBOE (at present, by the SLB). The value of those assets were already included in the value of the Fund for purposes of the Guarantee Program, but prior to the amendment had not been included in the calculation base for purposes of making transfers from the Fund to the ASF. While the amendment provided for an increase in the base for the calculation of approximately $2 billion, no new resources were provided for deposit to the Fund. As described under “The Total Return Constitutional Amendment” the SBOE is prevented from approving a Distribution Rate or making a pay out from the Fund if the amount distributed would exceed 6% of the average of the market value of the Fund, excluding real property in the Fund, but including discretionary real asset investments on the last day of each of the sixteen State fiscal quarters preceding the Regular Session of the Legislature that begins before that State fiscal biennium or if such pay out would exceed the Ten Year Total Return. If there are no reductions in the percentage established biennially by the SBOE to be the Distribution Rate, the impact of the increase in the base against which the Distribution Rate is applied will be an increase in the distributions from the PSF to the ASF. As a result, going forward, it may be necessary for the SBOE to reduce the Distribution Rate in order to preserve the corpus of the Fund in accordance with its management objective of preserving intergenerational equity. The Distribution Rates for the Fund were set at 3.5%, 2.5%, 4.2%, 3.3%, 3.5% and 3.7% for each of two year periods 2008-2009, 2010-2011, 2012-2013, 2014-2015, 2016-2017 and 2018-2019, respectively. In November 2018, the SBOE approved a $2.2 billion distribution to the ASF for State fiscal biennium 2020-2021, to be made in equal monthly increments of $92.2 million, which represents a 2.981% Distribution Rate for the biennium and a per student distribution of $220.97, based on 2018 preliminary student average daily attendance of 5,004,998. In making the 2020-2021 biennium distribution decision, the SBOE took into account a commitment of the SLB to transfer $10 million to the PSF in fiscal year 2020 and $45 million in fiscal year 2021.

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Changes in the Distribution Rate for each biennial period has been based on a number of financial and political reasons, as well as commitments made by the SLB in some years to transfer certain sums to the ASF. The new calculation base described above has been used to determine all payments to the ASF from the Fund beginning with the 2012-13 biennium. The broader base for the Distribution Rate calculation could increase transfers from the PSF to the ASF, although the effect of the broader calculation base has been somewhat offset since the 2014-2015 biennium by the establishment by the SBOE of somewhat lower Distribution Rates than for the 2012-2013 biennium. In addition, the changes made by the amendment that increased the calculation base that could affect the corpus of the Fund include the decisions that are made by the SLB or others that are, or may in the future be, authorized to make transfers of funds from the PSF to the ASF. The constitutional amendments approved on November 8, 2011 also provided authority to the GLO or any other entity (other than the SBOE) that has responsibility for the management of land or other properties of the PSF to determine whether to transfer an amount each year to the ASF from the revenue derived during the current year from such land or properties. Prior to November 2019, the amount authorized to be transferred to the ASF from the GLO was limited to $300 million per year. On November 5, 2019, a constitutional amendment was approved by State voters that increased the maximum transfer to the ASF to $600 million each year from the revenue derived during that year from the PSF from each of the GLO, the SBOE or any other entity that may have the responsibility to manage such properties (at present there are no such other entities). Any amount transferred to the ASF pursuant to this constitutional provision is excluded from the 6% Distribution Rate limitation applicable to SBOE transfers. The exercise of the increased authorization for such transfers is subject to the discretion of the GLO and the SBOE, and such transfers could be taken into account by the SBOE for purposes of its distributions to the ASF that are made pursuant to the Total Return Constitutional Amendment. However, future legal and/or financial analysis may be needed before the impact on the Fund of the constitutional change effected in November 2019 can be determined. OTHER EVENTS AND DISCLOSURES . . . The State Investment Ethics Code governs the ethics and disclosure requirements for financial advisors and other service providers who advise certain State governmental entities, including the PSF. In accordance with the provisions of the State Investment Ethics Code, the SBOE periodically modifies its code of ethics, which occurred most recently in April 2018. The SBOE code of ethics includes prohibitions on sharing confidential information, avoiding conflict of interests and requiring disclosure filings with respect to contributions made or received in connection with the operation or management of the Fund. The code of ethics applies to members of the SBOE as well as to persons who are responsible by contract or by virtue of being a TEA PSF staff member for managing, investing, executing brokerage transactions, providing consultant services, or acting as a custodian of the PSF, and persons who provide investment and management advice to a member of the SBOE, with or without compensation under certain circumstances. The code of ethics is codified in the Texas Administrative Code at 19 TAC sections 33.5 et seq., and is available on the TEA web site at http://ritter.tea.state.tx.us/rules/tac/chapter033/ch033a.html#33.5. In addition, the GLO has established processes and controls over its administration of real estate transactions and is subject to provisions of the Texas Natural Resources Code and its own internal procedures in administering real estate transactions for assets it manages for the Fund. In the 2011 legislative session, the Legislature approved an increase of 31 positions in the full-time equivalent employees for the administration of the Fund, which was funded as part of an $18 million appropriation for each year of the 2012-13 biennium, in addition to the operational appropriation of $11 million for each year of the biennium. The TEA has begun increasing the PSF administrative staff in accordance with the 2011 legislative appropriation, and the TEA received an appropriation of $30.2 million for the administration of the PSF for fiscal years 2016 and 2017, respectively, and $30.4 million for each of the fiscal years 2018 and 2019. As of August 31, 2019, certain lawsuits were pending against the State and/or the GLO, which challenge the Fund’s title to certain real property and/or past or future mineral income from that property, and other litigation arising in the normal course of the investment activities of the PSF. Reference is made to the Annual Report, when filed, for a description of such lawsuits that are pending, which may represent contingent liabilities of the Fund. PSF CONTINUING DISCLOSURE UNDERTAKING . . . The SBOE has adopted an investment policy rule (the “TEA Rule”) pertaining to the PSF and the Guarantee Program. The TEA Rule is codified in Section I of the TEA Investment Procedure Manual, which relates to the Guarantee Program and is posted to the TEA web site at http://tea.texas.gov/Finance_and_Grants/Texas_Permanent_School_Fund/Texas_Permanent_School_Fund_Disclosure_Statement_-_Bond_Guarantee_Program/. The most recent amendment to the TEA Rule was adopted by the SBOE on February 1, 2019, and is summarized below. Through the adoption of the TEA Rule and its commitment to guarantee bonds, the SBOE has made the following agreement for the benefit of the issuers, holders and beneficial owners of guaranteed bonds. The TEA (or its successor with respect to the management of the Guarantee Program) is required to observe the agreement for so long as it remains an “obligated person,” within the meaning of Rule 15c2-12, with respect to guaranteed bonds. Nothing in the TEA Rule obligates the TEA to make any filings or disclosures with respect to guaranteed bonds, as the obligations of the TEA under the TEA Rule pertain solely to the Guarantee Program. The issuer or an “obligated person” of the guaranteed bonds has assumed the applicable obligation under Rule 15c2-12 to make all disclosures and filings relating directly to guaranteed bonds, and the TEA takes no

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responsibility with respect to such undertakings. Under the TEA agreement, the TEA will be obligated to provide annually certain updated financial information and operating data, and timely notice of specified material events, to the MSRB. The MSRB has established the Electronic Municipal Market Access (“EMMA”) system, and the TEA is required to file its continuing disclosure information using the EMMA system. Investors may access continuing disclosure information filed with the MSRB at www.emma.msrb.org, and the continuing disclosure filings of the TEA with respect to the PSF can be found at https://emma.msrb.org/IssueView/Details/ER355077 or by searching for “Texas Permanent School Fund Bond Guarantee Program” on EMMA. ANNUAL REPORTS . . . The TEA will annually provide certain updated financial information and operating data to the MSRB. The information to be updated includes all quantitative financial information and operating data with respect to the Guarantee Program and the PSF of the general type included in this Official Statement under the heading “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM.” The information also includes the Annual Report. The TEA will update and provide this information within six months after the end of each fiscal year. The TEA may provide updated information in full text or may incorporate by reference certain other publicly-available documents, as permitted by Rule 15c2-12. The updated information includes audited financial statements of, or relating to, the State or the PSF, when and if such audits are commissioned and available. Financial statements of the State will be prepared in accordance with generally accepted accounting principles as applied to state governments, as such principles may be changed from time to time, or such other accounting principles as the State Auditor is required to employ from time to time pursuant to State law or regulation. The financial statements of the Fund were prepared to conform to U.S. Generally Accepted Accounting Principles as established by the Governmental Accounting Standards Board. The Fund is reported by the State of Texas as a permanent fund and accounted for on a current financial resources measurement focus and the modified accrual basis of accounting. Measurement focus refers to the definition of the resource flows measured. Under the modified accrual basis of accounting, all revenues reported are recognized based on the criteria of availability and measurability. Assets are defined as available if they are in the form of cash or can be converted into cash within 60 days to be usable for payment of current liabilities. Amounts are defined as measurable if they can be estimated or otherwise determined. Expenditures are recognized when the related fund liability is incurred. The State’s current fiscal year end is August 31. Accordingly, the TEA must provide updated information by the last day of February in each year, unless the State changes its fiscal year. If the State changes its fiscal year, the TEA will notify the MSRB of the change. EVENT NOTICES . . . The TEA will also provide timely notices of certain events to the MSRB. Such notices will be provided not more than ten business days after the occurrence of the event. The TEA will provide notice of any of the following events with respect to the Guarantee Program: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if such event is material within the meaning of the federal securities laws; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax-exempt status of the Guarantee Program, or other material events affecting the tax status of the Guarantee Program; (7) modifications to rights of holders of bonds guaranteed by the Guarantee Program, if such event is material within the meaning of the federal securities laws; (8) bond calls, if such event is material within the meaning of the federal securities laws, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of bonds guaranteed by the Guarantee Program, if such event is material within the meaning of the federal securities laws; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the Guarantee Program (which is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Guarantee Program in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Guarantee Program, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Guarantee Program); (13) the consummation of a merger, consolidation, or acquisition involving the Guarantee Program or the sale of all or substantially all of its assets, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (14) the appointment of a successor or additional trustee with respect to the Guarantee Program or the change of name of a trustee, if such event is material within the meaning of the federal securities laws; (15) the incurrence of a financial obligation of the Guarantee Program, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the Program, any of which affect security holders, if material; and (16) default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the Guarantee Program, any of which reflect financial difficulties. (Neither the Act nor any other law, regulation or instrument pertaining to the Guarantee Program make any provision with respect to the Guarantee Program for bond calls, debt service reserves, credit enhancement,

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liquidity enhancement, early redemption or the appointment of a trustee with respect to the Guarantee Program.) In addition, the TEA will provide timely notice of any failure by the TEA to provide information, data, or financial statements in accordance with its agreement described above under “Annual Reports.” AVAILABILITY OF INFORMATION . . . The TEA has agreed to provide the foregoing information only to the MSRB and to transmit such information electronically to the MSRB in such format and accompanied by such identifying information as prescribed by the MSRB. The information is available from the MSRB to the public without charge at www.emma.msrb.org. LIMITATIONS AND AMENDMENTS . . . The TEA has agreed to update information and to provide notices of material events only as described above. The TEA has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The TEA makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The TEA disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the TEA to comply with its agreement. The continuing disclosure agreement of the TEA is made only with respect to the PSF and the Guarantee Program. The issuer of guaranteed bonds or an obligated person with respect to guaranteed bonds may make a continuing disclosure undertaking in accordance with Rule 15c2-12 with respect to its obligations arising under Rule 15c2-12 pertaining to financial and operating data concerning such entity and notices of material events relating to such guaranteed bonds. A description of such undertaking, if any, is included elsewhere in the Official Statement. This continuing disclosure agreement may be amended by the TEA from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the TEA, but only if (1) the provisions, as so amended, would have permitted an underwriter to purchase or sell guaranteed bonds in the primary offering of such bonds in compliance with Rule 15c2-12, taking into account any amendments or interpretations of Rule 15c2-12 since such offering as well as such changed circumstances and (2) either (a) the holders of a majority in aggregate principal amount of the outstanding bonds guaranteed by the Guarantee Program consent to such amendment or (b) a person that is unaffiliated with the TEA (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the holders and beneficial owners of the bonds guaranteed by the Guarantee Program. The TEA may also amend or repeal the provisions of its continuing disclosure agreement if the SEC amends or repeals the applicable provision of Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling bonds guaranteed by the Guarantee Program in the primary offering of such bonds. COMPLIANCE WITH PRIOR UNDERTAKINGS . . . During the last five years, the TEA has not failed to substantially comply with its previous continuing disclosure agreements in accordance with Rule 15c2-12. SEC EXEMPTIVE RELIEF . . . On February 9, 1996, the TEA received a letter from the Chief Counsel of the SEC that pertains to the availability of the “small issuer exemption” set forth in paragraph (d)(2) of Rule 15c2-12. The letter provides that Texas school districts which offer municipal securities that are guaranteed under the Guarantee Program may undertake to comply with the provisions of paragraph (d)(2) of Rule 15c2-12 if their offerings otherwise qualify for such exemption, notwithstanding the guarantee of the school district securities under the Guarantee Program. Among other requirements established by Rule 15c2-12, a school district offering may qualify for the small issuer exemption if, upon issuance of the proposed series of securities, the school district will have no more than $10 million of outstanding municipal securities.


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STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS

LITIGATION RELATING TO THE TEXAS PUBLIC SCHOOL FINANCE SYSTEM . . . On seven occasions in the last thirty years, the Texas Supreme Court (the “Court”) has issued decisions assessing the constitutionality of the Texas public school finance system (the “Finance System”). The litigation has primarily focused on whether the Finance System, as amended by the Texas Legislature (the “State Legislature”) from time to time (i) met the requirements of article VII, section 1 of the Texas Constitution, which requires the State Legislature to “establish and make suitable provision for the support and maintenance of an efficient system of public free schools,” or (ii) imposed a statewide ad valorem tax in violation of article VIII, section 1-e of the Texas Constitution because the statutory limit on property taxes levied by school districts for maintenance and operation purposes had allegedly denied school districts meaningful discretion in setting their tax rates. In response to the Court’s previous decisions, the State Legislature enacted multiple laws that made substantive changes in the way the Finance System is funded in efforts to address the prior decisions declaring the Finance System unconstitutional. On May 13, 2016, the Court issued its opinion in the most recent school finance litigation, Morath v. The Texas Taxpayer and Student Fairness Coalition, 490 S.W.3d 826 (Tex. 2016) (“Morath”). The plaintiffs and intervenors in the case had alleged that the Finance System, as modified by the State Legislature in part in response to prior decisions of the Court, violated article VII, section 1 and article VIII, section 1-e of the Texas Constitution. In its opinion, the Court held that “[d]espite the imperfections of the current school funding regime, it meets minimum constitutional requirements.” The Court also noted that:

Lawmakers decide if laws pass, and judges decide if those laws pass muster. But our lenient standard of review in this policy-laden area counsels modesty. The judicial role is not to second-guess whether our system is optimal, but whether it is constitutional. Our Byzantine school funding “system” is undeniably imperfect, with immense room for improvement. But it satisfies minimum constitutional requirements.

POSSIBLE EFFECTS OF CHANGES IN LAW ON DISTRICT BONDS . . . The Court’s decision in Morath upheld the constitutionality of the Finance System but noted that the Finance System was “undeniably imperfect.” While not compelled by the Morath decision to reform the Finance System, the State Legislature could enact future changes to the Finance System. Any such changes could benefit or be a detriment to the District. If the State Legislature enacts future changes to, or fails adequately to fund the Finance System, or if changes in circumstances otherwise provide grounds for a challenge, the Finance System could be challenged again in the future. In its 1995 opinion in Edgewood Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995), the Court stated that any future determination of unconstitutionality “would not, however, affect the district’s authority to levy the taxes necessary to retire previously issued bonds, but would instead require the State Legislature to cure the system’s unconstitutionality in a way that is consistent with the Contract Clauses of the U.S. and Texas Constitutions” (collectively, the “Contract Clauses”), which prohibit the enactment of laws that impair prior obligations of contracts. Although, as a matter of law, the Bonds, upon issuance and delivery, will be entitled to the protections afforded previously existing contractual obligations under the Contract Clauses, the District can make no representations or predictions concerning the effect of future legislation, or any litigation that may be associated with such legislation, on the District’s financial condition, revenues or operations. While the enactment of future legislation to address school funding in Texas could adversely affect the financial condition, revenues or operations of the District, the District does not anticipate that the security for payment of the Bonds, specifically, the District’s obligation to levy an unlimited debt service tax and any Permanent School Fund guarantee of the Bonds would be adversely affected by any such legislation (see “CURRENT PUBLIC SCHOOL FINANCE SYSTEM”).


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CURRENT PUBLIC SCHOOL FINANCE SYSTEM During the 2019 Legislative Session, the State Legislature made numerous changes to the current public school finance system, the levy and collection of ad valorem taxes, and the calculation of defined tax rates, including particularly those contained in House Bill 3 (“HB 3”) and Senate Bill 2 (“SB 2”). In some instances, the provisions of HB 3 and SB 2 will require further interpretation in connection with their implementation in order to resolve ambiguities contained in the bills. The District is still in the process of (a) analyzing the provisions of HB 3 and SB 2, and (b) monitoring the on-going guidance provided by TEA. The information contained herein under the captions “CURRENT PUBLIC SCHOOL FINANCE SYSTEM” and “TAX RATE LIMITATIONS” is subject to change, and only reflects the District’s understanding of HB 3 and SB 2 based on information available to the District as of the date of this Official Statement. Prospective investors are encouraged to review HB 3, SB 2, and the Property Tax Code (as defined herein) for definitive requirements for the levy and collection of ad valorem taxes, the calculation of the defined tax rates, and the administration of the current public school finance system. OVERVIEW . . . The following language constitutes only a summary of the public school finance system as it is currently structured. For a more complete description of school finance and fiscal management in the State, reference is made to Chapters 43 through 49 of the Texas Education Code, as amended. Local funding is derived from collections of ad valorem taxes levied on property located within each school district’s boundaries. School districts are authorized to levy two types of property taxes: a maintenance and operations (“M&O”) tax to pay current expenses and an interest and sinking fund (“I&S”) tax to pay debt service on bonds. School districts may not increase their M&O tax rate for the purpose of creating a surplus to pay debt service on bonds. Prior to 2006, school districts were authorized to levy their M&O tax at a voter-approved rate, generally up to $1.50 per $100 of taxable value. Since 2006, the State Legislature has enacted various legislation that has compressed the voter-approved M&O tax rate, as described below. Current law also requires school districts to demonstrate their ability to pay debt service on outstanding bonded indebtedness through the levy of an I&S tax at a rate not to exceed $0.50 per $100 of taxable value at the time bonds are issued. Once bonds are issued, however, school districts generally may levy an I&S tax sufficient to pay debt service on such bonds unlimited as to rate or amount (see “TAX RATE LIMITATIONS – I&S Tax Rate Limitations” herein). Because property values vary widely among school districts, the amount of local funding generated by school districts with the same I&S tax rate and M&O tax rate is also subject to wide variation; however, the public school finance funding formulas are designed to generally equalize local funding generated by a school district’s M&O tax rate. Prior to the 2019 Legislative Session, a school district’s maximum M&O tax rate for a given tax year was determined by multiplying that school district’s 2005 M&O tax rate levy by an amount equal a compression percentage set by legislative appropriation or, in the absence of legislative appropriation, by the Commissioner of Education (the “Commissioner”). This compression percentage was historically set at 66.67%, effectively setting the maximum compressed M&O tax rate for most school districts at $1.00 per $100 of taxable value, since most school districts in the State had a voted maximum M&O tax rate of $1.50 per $100 of taxable value (though certain school districts located in Harris County had special M&O tax rate authorizations allowing a higher M&O tax rate). School districts were permitted, however, to generate additional local funds by raising their M&O tax rate up to $0.04 above the compressed tax rate or, with voter-approval at a valid election in the school district, up to $0.17 above the compressed tax rate (for most school districts, this equated to an M&O tax rate between $1.04 and $1.17 per $100 of taxable value). School districts received additional State funds in proportion to such taxing effort. LOCAL FUNDING FOR SCHOOL DISTRICTS . . . During the 2019 Legislative Session, the State Legislature made several significant changes to the funding methodology for school districts (the “2019 Legislation”). The 2019 Legislation orders a school district’s M&O tax rate into two distinct parts: the “Tier One Tax Rate,” which is the local M&O tax rate required for a school district to receive any part of the basic level of State funding (referred to herein as “Tier One”) under the Foundation School Program, as further described below, and the “Enrichment Tax Rate,” which is any local M&O tax effort in excess of its Tier One Tax Rate. The 2019 Legislation amended formulas for the State Compression Percentage and Maximum Compressed Tax Rate (each as described below) to compress M&O tax rates in response to year-over-year increases in property values across the State and within a school district, respectively. The discussion in this subcaption “Local Funding for School Districts” is generally intended to describe funding provisions applicable to all school districts; however, there are distinctions in the funding formulas for school districts that generate local M&O tax revenues in excess of the school districts’ funding entitlements, as further discussed under the subcaption “CURRENT PUBLIC SCHOOL FINANCE SYSTEM – Local Revenue Level in Excess of Entitlement” herein. State Compression Percentage. The “State Compression Percentage” for the State fiscal year ending in 2020 (the 2019-2020 school year) is a statutorily-defined percentage of the rate of $1.00 per $100 at which a school district must levy its Tier One Tax Rate to receive the full amount of the Tier One funding to which a school district is entitled. For the State fiscal year ending in 2020, the State Compression Percentage is set at 93% per $100 of taxable value. Beginning in the State fiscal year ending in 2021, the State Compression Percentage is the lesser of three alternative calculations: (1) 93% or a lower percentage set by appropriation for a school year; (2) a percentage determined by formula if the estimated total taxable property value of the State (as submitted annually to the State Legislature by the State Comptroller) has increased by at least 2.5% over the prior year; and (3) the prior year State Compression Percentage. For any year, the maximum State Compression Percentage is 93%.

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Maximum Compressed Tax Rate. Pursuant to the 2019 Legislation, beginning with the State fiscal year ending in 2021 (the 2020-2021 school year) the Maximum Compressed Tax Rate (the “MCR”) is the tax rate per $100 of valuation of taxable property at which a school district must levy its Tier One Tax Rate to receive the full amount of the Tier One funding to which the school district is entitled. The MCR is equal to the lesser of three alternative calculations: (1) the school district’s prior year MCR; (2) a percentage determined by formula if the school district experienced a year-over-year increase in property value of at least 2.5%; or (3) the product of the State Compression Percentage for the current year multiplied by $1.00. However, each year the TEA shall evaluate the MCR for each school district in the State, and for any given year, if a school district’s MCR is calculated to be less than 90% of any other school district’s MCR for the current year, then the school district’s MCR is instead equal to the school district’s prior year MCR, until TEA determines that the difference between the school district’s MCR and any other school district’s MCR is not more than 10%. These compression formulas are intended to more closely equalize local generation of Tier One funding among districts with disparate tax bases and generally reduce the Tier One Tax Rates of school districts as property values increase. Tier One Tax Rate. For the 2019-2020 school year, the Tier One Tax Rate is the State Compression Percentage multiplied by (i) $1.00, or (ii) for a school district that levied an M&O tax rate for the 2018-2019 school year that was less than $1.00 per $100 of taxable value, the total number of cents levied by the school district for the 2018-2019 school year for M&O purposes; effectively setting the Tier One Tax Rate for the State fiscal year ending in 2020 for most school districts at $0.93. Beginning in the 2020-2021 school year, a school district’s Tier One Tax Rate is defined as a school district’s M&O tax rate levied that does not exceed the school district’s MCR. Enrichment Tax Rate. The Enrichment Tax Rate is the number of cents a school district levies for M&O in excess of the Tier One Tax Rate, up to an additional $0.17. The Enrichment Tax Rate is divided into two components: (i) “Golden Pennies” which are the first $0.08 of tax effort in excess of a school district’s Tier One Tax Rate; and (ii) “Copper Pennies” which are the next $0.09 in excess of a school district’s Tier One Tax Rate plus Golden Pennies. School districts may levy an Enrichment Tax Rate at a level of their choice, subject to the limitations described under “TAX RATE LIMITATIONS – Public Hearing and Voter-Approval Tax Rate”; however to levy any of the Enrichment Tax Rate in a given year, a school district must levy a Tier One Tax Rate equal to $0.93 for the 2019-2020 school year, or equal to the school district’s MCR for the 2020-2021 and subsequent years. Additionally, a school district’s levy of Copper Pennies is subject to compression if the guaranteed yield (i.e., the guaranteed level of local tax revenue and State aid generated for each cent of tax effort) of Copper Pennies is increased from one year to the next (see “CURRENT PUBLIC SCHOOL FINANCE SYSTEM – State Funding for School Districts – Tier Two”). STATE FUNDING FOR SCHOOL DISTRICTS . . . State funding for school districts is provided through the two-tiered Foundation School Program, which guarantees certain levels of funding for school districts in the State. School districts are entitled to a legislatively appropriated guaranteed yield on their Tier One Tax Rate and Enrichment Tax Rate. When a school district’s Tier One Tax Rate and Enrichment Tax Rate generate tax revenues at a level below the respective entitlement, the State will provide “Tier One” funding or “Tier Two” funding, respectively, to fund the difference between the school district’s entitlements and the calculated M&O revenues generated by the school district’s respective M&O tax rates. The first level of funding, Tier One, is the basic level of funding guaranteed to all school districts based on a school district’s Tier One Tax Rate. Tier One funding may then be “enriched” with Tier Two funding. Tier Two provides a guaranteed entitlement for each cent of a school district’s Enrichment Tax Rate, allowing a school district increase or decrease its Enrichment Tax Rate to supplement Tier One funding at a level of the school district’s own choice. While Tier One funding may be used for the payment of debt service (except for school districts subject to the recapture provisions of Chapter 49 of the Texas Education Code, as discussed herein), and in some instances is required to be used for that purpose (see “TAX RATE LIMITATIONS – I&S Tax Rate Limitations”), Tier Two funding may not be used for the payment of debt service or capital outlay. The current public school finance system also provides an Existing Debt Allotment (“EDA”) to subsidize debt service on eligible outstanding school district bonds, an Instructional Facilities Allotment (“IFA”) to subsidize debt service on newly issued bonds, and a New Instructional Facilities Allotment (“NIFA”) to subsidize operational expenses associated with the opening of a new instructional facility. IFA primarily addresses the debt service needs of property-poor school districts. For the 2020-2021 State fiscal biennium, the State Legislature appropriated funds in the amount of $1,323,444,300 for the EDA, IFA, and NIFA. Tier One and Tier Two allotments represent the State’s share of the cost of M&O expenses of school districts, with local M&O taxes representing the school district’s local share. EDA and IFA allotments supplement a school district’s local I&S taxes levied for debt service on eligible bonds issued to construct, acquire and improve facilities, provided that a school district qualifies for such funding and that the State Legislature makes sufficient appropriations to fund the allotments for a State fiscal biennium. Tier One and Tier Two allotments and existing EDA and IFA allotments are generally required to be funded each year by the State Legislature.

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Tier One. Tier One funding is the basic level of funding guaranteed to a school district, consisting of a State-appropriated baseline level of funding (the “Basic Allotment”) for each student in “Average Daily Attendance” (being generally calculated as the sum of student attendance for each State-mandated day of instruction divided by the number of State-mandated days of instruction, defined herein as “ADA”). The Basic Allotment is revised downward if a school district’s Tier One Tax Rate is less than the State-determined threshold. The Basic Allotment is supplemented by additional State funds, allotted based upon the unique school district characteristics and demographics of students in ADA, to make up most of a school district’s Tier One entitlement under the Foundation School Program. For the 2019-2020 State fiscal year, the Basic Allotment for school districts with a Tier One Tax Rate equal to $0.93, is $6,160 for each student in ADA and is revised downward for school districts with a Tier One Tax Rate lower than $0.93. For the State fiscal year ending in 2021 and subsequent State fiscal years, the Basic Allotment for a school district with a Tier One Tax Rate equal to the school district’s MCR, is $6,160 (or a greater amount as may be provided by appropriation) for each student in ADA and is revised downward for a school district with a Tier One Tax Rate lower than the school district’s MCR. The Basic Allotment is then supplemented for all school districts by various weights to account for differences among school districts and their student populations. Such additional allotments include, but are not limited to, increased funds for students in ADA who: (i) attend a qualified special education program, (ii) are diagnosed with dyslexia or a related disorder, (iii) are economically disadvantaged, or (iv) have limited English language proficiency. Additional allotments to mitigate differences among school districts include, but are not limited to: (i) a transportation allotment for mileage associated with transporting students who reside two miles or more from their home campus, (ii) a fast growth allotment (for school districts in the top 25% of enrollment growth relative to other school districts), and (iii) a college, career and military readiness allotment to further Texas’ goal of increasing the number of students who attain a post- secondary education or workforce credential, and (iv) a teacher incentive allotment to increase teacher compensation retention in disadvantaged or rural school districts. A school district’s total Tier One funding, divided by $6,160, is a school district’s measure of students in “Weighted Average Daily Attendance” (“WADA”), which serves to calculate Tier Two funding. Tier Two. Tier Two supplements Tier One funding and provides two levels of enrichment with different guaranteed yields (i.e., Golden Pennies and Copper Pennies) depending on the school district’s Enrichment Tax Rate. Golden Pennies generate a guaranteed yield equal to the greater of (i) the local revenue per student in WADA per cent of tax effort available to a school district at the ninety-sixth (96th) percentile of wealth per student in WADA, or (ii) the Basic Allotment (or a greater amount as may be provided by appropriation) multiplied by 0.016. For the 2020-2021 State fiscal biennium, school districts are guaranteed a yield of $98.56 per student in WADA for each Golden Penny levied. Copper Pennies generate a guaranteed yield per student in WADA equal to the school district’s Basic Allotment (or a greater amount as may be provided by appropriation) multiplied by 0.008. For the 2020-2021 State fiscal biennium, school districts are guaranteed a yield of $49.28 per student in WADA for each Copper Penny levied. For any school year in which the guaranteed yield of Copper Pennies per student in WADA exceeds the guaranteed yield of Copper Pennies per student in WADA for the preceding school year, a school district is required to reduce its Copper Pennies levied so as to generate no more revenue per student in WADA than was available to the school district for the preceding year. Accordingly, the increase in the guaranteed yield from $31.95 per Copper Penny per student in WADA for the 2018-2019 school year to $49.28 per Copper Penny per student in WADA for the 2019-2020 school year requires school districts to compress their levy of Copper Pennies by a factor of 0.64834. As such, school districts that levied an Enrichment Tax Rate of $0.17 in school year 2018-2019 must reduce their Enrichment Tax Rate to approximately $0.138 per $100 taxable value for the 2019-2020 school year. Existing Debt Allotment, Instruction Facilities Allotment, and New Instructional Facilities Allotment. The Foundation School Program also includes facilities funding components consisting of the IFA and the EDA, subject to legislative appropriation each State fiscal biennium. To the extent funded for a biennium, these programs assist school districts in funding facilities by, generally, equalizing a school district’s I&S tax effort. The IFA guarantees each awarded school district a specified amount per student (the “IFA Yield”) in State and local funds for each cent of I&S tax levied to pay the principal of and interest on eligible bonds issued to construct, acquire, renovate or improve instructional facilities. The IFA Yield has been $35 since this program first began in 1997. New awards of IFA are only available if appropriated funds are allocated for such purpose by the State Legislature. To receive an IFA award, in years where new IFA awards are available, a school district must apply to the Commissioner in accordance with rules adopted by the TEA before issuing the bonds to be paid with IFA State assistance. The total amount of debt service assistance over a biennium for which a school district may be awarded is limited to the lesser of (1) the actual debt service payments made by the school district in the biennium in which the bonds are issued; or (2) the greater of (a) $100,000 or (b) $250 multiplied by the number of students in ADA. The IFA is also available for lease-purchase agreements and refunding bonds meeting certain prescribed conditions. Once a school district receives an IFA award for bonds, it is entitled to continue receiving State assistance for such bonds without reapplying to the Commissioner. The guaranteed level of State and local funds per student per cent of local tax effort applicable to the bonds may not be reduced below the level provided for the year in which the bonds were issued. For the 2020-2021 State fiscal biennium, the State Legislature did not appropriate any funds for new IFA awards; however, awards previously granted in years the State Legislature did appropriate funds for new IFA awards will continue to be funded.

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State financial assistance is provided for certain existing eligible debt issued by school districts through the EDA program. The EDA guaranteed yield (the “EDA Yield”) is the lesser of (i) $40 per student in ADA or a greater amount for any year provided by appropriation; or (ii) the amount that would result in a total additional EDA of $60 million more than the EDA to which school districts would have been entitled to if the EDA Yield were $35. The portion of a school district’s local debt service rate that qualifies for EDA assistance is limited to the first $0.29 of its I&S tax rate (or a greater amount for any year provided by appropriation by the State Legislature). In general, a school district’s bonds are eligible for EDA assistance if (i) the school district made payments on the bonds during the final fiscal year of the preceding State fiscal biennium, or (ii) the school district levied taxes to pay the principal of and interest on the bonds for that fiscal year. Each biennium, access to EDA funding is determined by the debt service taxes collected in the final year of the preceding biennium. A school district may not receive EDA funding for the principal and interest on a series of otherwise eligible bonds for which the school district receives IFA funding. Since future-year IFA awards were not funded by the State Legislature for the 2020-2021 State fiscal biennium and debt service assistance on school district bonds that are not yet eligible for EDA is not available, debt service payments during the 2020-2021 State fiscal biennium on new bonds issued by school districts in the 2020-2021 State fiscal biennium to construct, acquire and improve facilities must be funded solely from local I&S taxes. A school district may also qualify for a NIFA allotment, which provides assistance to school districts for operational expenses associated with opening new instructional facilities. In the 2019 Legislative Session, the State Legislature appropriated funds in the amount of $100,000,000 for each fiscal year of the 2020-2021 State fiscal biennium for NIFA allotments. Tax Rate and Funding Equity. The Commissioner may adjust a school district’s funding entitlement if the funding formulas used to determine the school district’s entitlement result in an unanticipated loss or gain for a school district. Any such adjustment requires preliminary approval from the Legislative Budget Board and the office of the Governor, and such adjustments may only be made through the 2020-2021 school year. Additionally, the Commissioner may proportionally reduce the amount of funding a school district receives under the Foundation School Program and the ADA calculation if the school district operates on a calendar that provides less than the State-mandated minimum instruction time in a school year. The Commissioner may also adjust a school district’s ADA as it relates to State funding where disaster, flood, extreme weather or other calamity has a significant effect on a school district’s attendance. Furthermore, “property-wealthy” school districts that received additional State funds under the public school finance system prior to the enactment of the 2019 Legislation are entitled to an equalized wealth transition grant on an annual basis through the 2023-2024 school year in an amount equal to the amount of additional revenue such school district would have received under former Texas Education Code Sections 41.002(e) through (g), as those sections existed on January 1, 2019. This grant is phased out through the 2023-2024 school year as follows: (1) 20% reduction for the 2020-2021 school year, (2) 40% reduction for the 2021-2022 school year, (3) 60% reduction for the 2022-2023 school year, and (4) 80% reduction for the 2023-2024 school year. LOCAL REVENUE LEVEL IN EXCESS OF ENTITLEMENT . . . A school district that has sufficient property wealth per student in ADA to generate local revenues on the school district’s Tier One Tax Rate and Copper Pennies in excess of the school district’s respective funding entitlements (a “Chapter 49 school district”), is subject to the local revenue reduction provisions contained in Chapter 49 of Texas Education Code, as amended (“Chapter 49”). Additionally, in years in which the amount of State funds appropriated specifically excludes the amount necessary to provide the guaranteed yield for Golden Pennies, local revenues generated on a school district’s Golden Pennies in excess of the school district’s respective funding entitlement are subject to the local revenue reduction provisions of Chapter 49. To reduce local revenue, Chapter 49 school districts are generally subject to a process known as “recapture,” which requires a Chapter 49 school district to exercise certain options to remit local M&O tax revenues collected in excess of the Chapter 49 school district’s funding entitlements to the State (for redistribution to other school districts) or otherwise expending the respective M&O tax revenues for the benefit of students in school districts that are not Chapter 49 school districts, as described in the subcaption “Options for Local Revenue Levels in Excess of Entitlement.” Chapter 49 school districts receive their allocable share of funds distributed from the constitutionally-prescribed Available School Fund, but are generally not eligible to receive State aid under the Foundation School Program, although they may continue to receive State funds for certain competitive grants and certain programs that remain outside the Foundation School Program. Whereas prior to the 2019 Legislation, the recapture process had been based on the proportion of a school district’s assessed property value per student in ADA, recapture is now measured by the “local revenue level” (being the M&O tax revenues generated in a school district) in excess of the entitlements appropriated by the State Legislature each fiscal biennium. Therefore, school districts are now guaranteed that recapture will not reduce revenue below their statutory entitlement. The changes to the wealth transfer provisions are expected to reduce the cumulative amount of recapture payments paid by school districts by approximately $3.6 billion during the 2020-2021 State fiscal biennium. Options for Local Revenue Levels in Excess of Entitlement. Under Chapter 49, a school district has six options to reduce local revenues to a level that does not exceed the school district’s respective entitlements: (1) a school district may consolidate by agreement with one or more school districts to form a consolidated school district; all property and debt of the consolidating school districts vest in the consolidated school district; (2) a school district may detach property from its territory for annexation by a property-poor school district; (3) a school district may purchase attendance credits from the State; (4) a school district may contract

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to educate nonresident students from a property-poor school district by sending money directly to one or more property-poor school districts; (5) a school district may execute an agreement to provide students of one or more other school districts with career and technology education through a program designated as an area program for career and technology education; or (6) a school district may consolidate by agreement with one or more school districts to form a consolidated taxing school district solely to levy and distribute either M&O taxes or both M&O taxes and I&S taxes. A Chapter 49 school district may also exercise any combination of these remedies. Options (3), (4) and (6) require prior approval by the Chapter 49 school district’s voters. Furthermore, a school district may not adopt a tax rate until its effective local revenue level is at or below the level that would produce its guaranteed entitlement under the Foundation School Program. If a school district fails to exercise a permitted option, the Commissioner must reduce the school district’s local revenue level to the level that would produce the school district’s guaranteed entitlement, by detaching certain types of property from the school district and annexing the property to a property-poor school district or, if necessary, consolidate the school district with a property-poor school district. Provisions governing detachment and annexation of taxable property by the Commissioner do not provide for assumption of any of the transferring school district’s existing debt.

THE SCHOOL FINANCE SYSTEM AS APPLIED TO THE DISTRICT

For the 2019-2020 fiscal year, the District was designated as an "excess local revenue" district by the TEA. According to currently available information from TEA, the District is subject to recapture and, therefore, the District is required to exercise one of the wealth equalization options permitted under applicable State law. The District has notified the TEA that it intends to reduce its wealth per student pursuant to Option 3, an agreement to purchase attendance credits pursuant to Chapter 49, Texas Education Code, as amended (see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - Local Revenue in Excess of Entitlement" herein). A district's "excess local revenue" must be tested for each future school year and, if it exceeds the maximum permitted level, the District must reduce its wealth per student by the exercise of one of the permitted wealth equalization options. Accordingly, if the District's wealth per student should continue to exceed the maximum permitted value in future school years, it may be required each year to exercise one or more of the wealth reduction options. If the District were to consolidate (or consolidate its tax base for all purposes) with a property-poor district, the outstanding debt of each district could become payable from the consolidated district's combined property tax base, and the District's ratio of taxable property to debt could become diluted. If the District were to detach prope1ty voluntarily, a portion of its outstanding debt (including the Bonds) could be assumed by the district to which the property is annexed, in which case timely payment of the Bonds could become dependent in part on the financial performance of the annexing district. For a detailed discussion of State funding for school districts, see "CURRENT PUBLIC SCHOOL FINANCE SYSTEM - State Funding for School Districts" herein.


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TAX RATE LIMITATIONS

M&O TAX RATE LIMITATIONS . . . The District is authorized to levy an M&O tax rate pursuant to the approval of the voters of the District at an election held on March 31, 1956 in accordance with the provisions of Article 2784e-1, Tex. Rev. Civ. Stats. Ann., as amended.

The 2019 Legislation established the following maximum M&O tax rate per $100 of taxable value that may be adopted by school districts, such as the District, for the 2019 and subsequent tax years:

For the 2019 tax year, the maximum M&O tax rate per $100 of taxable value that may be adopted by a school district is the sum of $0.17 and the product of the State Compression Percentage multiplied by $1.00. For the 2019 tax year, the state compression percentage has been set at 93%.

For the 2020 and subsequent tax years, the maximum M&O tax rate per $100 of taxable value that may be adopted by a school district is the sum of $0.17 and the school district’s MCR. A school district’s MCR is, generally, inversely proportional to the change in taxable property values both within the school district and the State, and is subject to recalculation annually. For any year, the highest possible MCR for a school district is $0.93 (see “TAX RATE LIMITATIONS – Public Hearing and Voter-Approval Tax Rate” and “CURRENT PUBLIC SCHOOL FINANCE SYSTEM – Local Funding for School Districts” herein).

Furthermore, a school district cannot annually increase its tax rate in excess of the school district’s Voter-Approval Tax Rate without submitting such tax rate to an election and a majority of the voters voting at such election approving the adopted rate (see “TAX RATE LIMITATIONS – Public Hearing and Voter-Approval Tax Rate” herein).

I&S TAX RATE LIMITATIONS . . . A school district is also authorized to issue bonds and levy taxes for payment of bonds subject to voter approval of one or more propositions submitted to the voters under Section 45.003(b)(1), Texas Education Code, as amended, which provides a tax unlimited as to rate or amount for the support of school district bonded indebtedness (see “THE BONDS – Security”).

Section 45.0031 of the Texas Education Code, as amended, requires a school district to demonstrate to the Texas Attorney General that it has the prospective ability to pay its maximum annual debt service on a proposed issue of bonds and all previously issued bonds, other than bonds approved by voters of a school district at an election held on or before April 1, 1991 and issued before September 1, 1992 (or debt issued to refund such bonds, collectively, “exempt bonds”), from a tax levied at a rate of $0.50 per $100 of assessed valuation before bonds may be issued (the “50-cent Test”). In demonstrating the ability to pay debt service at a rate of $0.50, a school district may take into account EDA and IFA allotments to the school district, which effectively reduces the school district’s local share of debt service, and may also take into account Tier One funds allotted to the school district. If a school district exercises this option, it may not adopt an I&S tax until it has credited to the school district’s I&S fund an amount equal to all State allotments provided solely for payment of debt service and any Tier One funds needed to demonstrate compliance with the threshold tax rate test and which is received or to be received in that year. Additionally, a school district may demonstrate its ability to comply with the 50-cent Test by applying the $0.50 tax rate to an amount equal to 90% of projected future taxable value of property in the school district, as certified by a registered professional appraiser, anticipated for the earlier of the tax year five (5) years after the current tax year or the tax year in which the final payment for the bonds is due. However, if a school district uses projected future taxable values to meet the 50-cent Test and subsequently imposes a tax at a rate greater than $0.50 per $100 of valuation to pay for bonds subject to the test, then for subsequent bond issues, the Texas Attorney General must find that the school district has the projected ability to pay principal and interest on the proposed bonds and all previously issued bonds subject to the 50-cent Test from a tax rate of $0.45 per $100 of valuation. Once the prospective ability to pay such tax has been shown and the bonds are issued, a school district may levy an unlimited tax to pay debt service. Refunding bonds issued pursuant to Chapter 1207, Texas Government Code, are not subject to the 50-cent Test; however, taxes levied to pay debt service on such bonds (other than bonds issued to refund exempt bonds) are included in maximum annual debt service for calculation of the 50-cent Test when applied to subsequent bond issues that are subject to the 50-cent Test. The Bonds are issued for school building purposes pursuant to Chapter 45, Texas Education Code as new debt and are, therefore, subject to the 50-cent Test. In connection with the issuance of the Bonds, the District does not expect to use State assistance or projected property values to satisfy this threshold test.

PUBLIC HEARING AND VOTER-APPROVAL TAX RATE . . . A school district’s total tax rate is the combination of the M&O tax rate and the I&S tax rate. Generally, the highest rate at which a school district may levy taxes for any given year without holding an election to approve the tax rate is the “Voter-Approval Tax Rate,” as described below.

For the 2019 tax year, a school district is required to adopt its annual tax rate before the later of September 30 or the sixtieth (60th) day after the date the certified appraisal roll is received by the taxing unit, and a failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit being the lower of the “effective tax rate” calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. “Effective tax rate” means the rate that will produce the prior year’s total tax levy from the current year’s total taxable values, adjusted such that lost values are not included in the calculation of the prior year’s taxable values and new values are not included in the current year’s taxable values.

For the 2019 tax year, the Voter-Approval Tax Rate for a school district is the sum of (i) the State Compression Percentage, multiplied by $1.00; (ii) the greater of (a) the school district’s M&O tax rate for the 2018 tax year, less the sum of (1) $1.00, and

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(2) any amount by which the school district is required to reduce its Enrichment Tax Rate for the 2019 tax year, or (b) $0.04; and (iii) the school district’s I&S tax rate. For the 2019 tax year, a school district’s M&O tax rate may not exceed the rate equal to the sum of (i) $0.17 and (ii) the product of the State Compression Percentage multiplied by $1.00.

For the 2019 tax year, a school district with a Voter-Approval Tax Rate equal to or greater than $0.97 (excluding the school district’s current I&S tax rate) may not adopt tax rate for the 2019 tax year that exceeds the school district’s Voter-Approval Tax Rate. For the 2019 tax year, the District’s Voter-Approval Tax Rate (excluding its current I&S tax rate) is $0.97. For the 2019 tax year, the District is not eligible to adopt a tax rate that exceeds its Voter-Approval Tax Rate.

Beginning with the 2020 tax year, a school district is required to adopt its annual tax rate before the later of September 30 or the sixtieth (60th) day after the date the certified appraisal roll is received by the taxing unit, except that a tax rate that exceeds the Voter- Approval Tax Rate must be adopted not later than the seventy-first (71st) day before the next occurring November uniform election date. A school district’s failure to adopt a tax rate equal to or less than the Voter-Approval Tax Rate by September 30 or the sixtieth (60th) day after receipt of the certified appraisal roll, will result in the tax rate for such school district for the tax year to be the lower of the “no-new-revenue tax rate” calculated for that tax year or the tax rate adopted by the school district for the preceding tax year. A school district’s failure to adopt a tax rate in excess of the Voter-Approval Tax Rate on or prior to the seventy-first (71st) day before the next occurring November uniform election date, will result in the school district adopting a tax rate equal to or less than its Voter- Approval Tax Rate by the later of September 30 or the sixtieth (60th) day after receipt of the certified appraisal roll. “No-new-revenue tax rate” means the rate that will produce the prior year’s total tax levy from the current year’s total taxable values, adjusted such that lost values are not included in the calculation of the prior year’s taxable values and new values are not included in the current year’s taxable values.

For the 2020 and subsequent tax years, the Voter-Approval Tax Rate for a school district is the sum of (i) the school district’s MCR; (ii) the greater of (a) the school district’s Enrichment Tax Rate for the preceding year, less any amount by which the school district is required to reduce its current year Enrichment Tax Rate pursuant to Section 48.202(f), Education Code, as amended, or (b) the rate of $0.05 per $100 of taxable value; and (iii) the school district’s current I&S tax rate. However, for only the 2020 tax year, if the governing body of the school district does not adopt by unanimous vote an M&O tax rate at least equal to the sum of the school district’s MCR plus $0.05, then $0.04 is substituted for $0.05 in the calculation for such school district’s Voter-Approval Tax Rate for the 2020 tax year. For the 2020 tax year, and subsequent years, a school district’s M&O tax rate may not exceed the rate equal to the sum of (i) $0.17 and (ii) the school district’s MCR (see “CURRENT PUBLIC SCHOOL FINANCE SYSTEM” herein for more information regarding the State Compression Percentage, MCR, and the Enrichment Tax Rate).

Beginning with the 2020 tax year, the governing body of a school district generally cannot adopt a tax rate exceeding the school district’s Voter-Approval Tax Rate without approval by a majority of the voters approving the higher rate at an election to be held on the next uniform election date. Further, subject to certain exceptions for areas declared disaster areas, State law requires the board of trustees of a school district to conduct an efficiency audit before seeking voter approval to adopt a tax rate exceeding the Voter- Approval Tax Rate and sets certain parameters for conducting and disclosing the results of such efficiency audit. An election is not required for a tax increase to address increased expenditures resulting from certain natural disasters in the year following the year in which such disaster occurs; however, the amount by which the increased tax rate exceeds the school district’s Voter-Approval Tax Rate for such year may not be considered by the school district in the calculation of its subsequent Voter-Approval Tax Rate. The calculation of the Voter-Approval Tax Rate does not limit or impact the District’s ability to set an I&S tax rate in each year sufficient to pay debt service on all of the District’s tax-supported debt obligations, including the Bonds.

Before adopting its annual tax rate, a public meeting must be held for the purpose of adopting a budget for the succeeding year. A notice of public meeting to discuss the school district’s budget and proposed tax rate must be published in the time, format and manner prescribed in Section 44.004 of the Texas Education Code. Section 44.004(e) of the Texas Education Code provides that a person who owns taxable property in a school district is entitled to an injunction restraining the collection of taxes by the school district if the school district has not complied with such notice requirements or the language and format requirements of such notice as set forth in Section 44.004(b), (c), (c-1), (c-2), and (d), and, if applicable, subsection (i), and if such failure to comply was not in good faith. Section 44.004(e) further provides the action to enjoin the collection of taxes must be filed before the date the school district delivers substantially all of its tax bills. A school district that elects to adopt a tax rate before the adoption of a budget for the fiscal year that begins in the current tax year may adopt a tax rate for the current tax year before receipt of the certified appraisal roll, so long as the chief appraiser of the appraisal district in which the school district participates has certified to the assessor for the school district an estimate of the taxable value of property in the school district. If a school district adopts its tax rate prior to the adoption of its budget, both the no-new-revenue tax rate and the Voter-Approval Tax Rate of the school district shall be calculated based on the school district’s certified estimate of taxable value. A school district that adopts a tax rate before adopting its budget must hold a public hearing on the proposed tax rate followed by another public hearing on the proposed budget rather than holding a single hearing on the two items. Beginning with the 2020 tax year, a school district must annually calculate and prominently post on its internet website, and submit to the county tax assessor-collector for each county in which all or part of the school district is located its Voter-Approval Tax Rate in accordance with forms prescribed by the State Comptroller.

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AD VALOREM TAX PROCEDURES

The following is a summary of certain provisions of State law as it relates to ad valorem taxation and is not intended to be complete. Prospective investors are encouraged to review Title I of the Texas Tax Code, as amended (the “Property Tax Code”), for identification of property subject to ad valorem taxation, property exempt or which may be exempted from ad valorem taxation if claimed, the appraisal of property for ad valorem tax purposes, and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Valuation of Taxable Property The Property Tax Code provides for countywide appraisal and equalization of taxable property values and establishes in each county of the State an appraisal district and an appraisal review board (the “Appraisal Review Board”) responsible for appraising property for all taxing units within the county. The appraisal of property within the District is the responsibility of the McLennan County Appraisal District (the “Appraisal District”). Except as generally described below, the Appraisal District is required to appraise all property within the appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, the Appraisal District is required to consider the cost method of appraisal, the income method of appraisal and the market data comparison method of appraisal, and use the method the chief appraiser of the Appraisal District considers most appropriate. The Property Tax Code requires appraisal districts to reappraise all property in its jurisdiction at least once every three years. A taxing unit may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the taxing unit by petition filed with the Appraisal Review Board. State law requires the appraised value of an owner’s principal residence (“homestead” or “homesteads”) to be based solely on the property’s value as a homestead, regardless of whether residential use is considered to be the highest and best use of the property. State law further limits the appraised value of a homestead to the lesser of (1) the market value of the property or (2) 110% of the appraised value of the property for the preceding tax year plus the market value of all new improvements to the property. State law provides that eligible owners of both agricultural land and open-space land, including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified as both agricultural and open-space land. The appraisal values set by the Appraisal District are subject to review and change by the Appraisal Review Board. The appraisal rolls, as approved by the Appraisal Review Board, are used by taxing units, such as the District, in establishing their tax rolls and tax rates (see “AD VALOREM PROPERTY TAXATION – District and Taxpayer Remedies”). State Mandated Homestead Exemptions. State law grants, with respect to each school district in the State, (1) a $25,000 exemption of the appraised value of all homesteads, (2) a $10,000 exemption of the appraised value of the homesteads of persons sixty-five (65) years of age or older and the disabled, and (3) various exemptions for disabled veterans and their families, surviving spouses of members of the armed services killed in action and surviving spouses of first responders killed or fatally wounded in the line of duty. Local Option Homestead Exemptions. The governing body of a taxing unit, including a city, county, school district, or special district, at its option may grant: (1) an exemption of up to 20% of the appraised value of all homesteads (but not less than $5,000) and (2) an additional exemption of at least $3,000 of the appraised value of the homesteads of persons sixty-five (65) years of age or older and the disabled. Each taxing unit decides if it will offer the local option homestead exemptions and at what percentage or dollar amount, as applicable. The governing body of a school district was not permitted to repeal or reduce the amount of the local option homestead exemption described in (1), above, that was in place for the 2014 tax year (fiscal year 2015) for a period that ended December 31, 2019. The exemption described in (2), above, may also be created, increased, decreased or repealed at an election called by the governing body of a taxing unit upon presentment of a petition for such creation, increase, decrease, or repeal of at least 20% of the number of qualified voters who voted in the preceding election of the taxing unit. State Mandated Freeze on School District Taxes. Except for increases attributable to certain improvements, a school district is prohibited from increasing the total ad valorem tax on the homestead of persons sixty-five (65) years of age or older or of disabled persons above the amount of tax imposed in the year such homestead qualified for such exemption. This freeze is transferable to a different homestead if a qualifying taxpayer moves and, under certain circumstances, is also transferable to the surviving spouse of persons sixty-five (65) years of age or older, but not the disabled. Personal Property. Tangible personal property (furniture, machinery, supplies, inventories, etc.) used in the “production of income” is taxed based on the property’s market value. Taxable personal property includes income-producing equipment and inventory. Intangibles such as goodwill, accounts receivable, and proprietary processes are not taxable. Tangible personal property not held or used for production of income, such as household goods, automobiles or light trucks, and boats, is exempt from ad valorem taxation unless the governing body of a taxing unit elects to tax such property.

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Freeport and Goods-in-Transit Exemptions. Certain goods that are acquired in or imported into the State to be forwarded outside the State, and are detained in the State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication (“Freeport Property”) are exempt from ad valorem taxation unless a taxing unit took official action to tax Freeport Property before April 1, 1990 and has not subsequently taken official action to exempt Freeport Property. Decisions to continue taxing Freeport Property may be reversed in the future; decisions to exempt Freeport Property are not subject to reversal. Certain goods, that are acquired in or imported into the State to be forwarded to another location within or without the State, stored in a location that is not owned by the owner of the goods and are transported to another location within or without the State within 175 days (“Goods-in-Transit”), are generally exempt from ad valorem taxation; however, the Property Tax Code permits a taxing unit, on a local option basis, to tax Goods-in-Transit if the taxing unit takes official action, after conducting a public hearing, before January 1 of the first tax year in which the taxing unit proposes to tax Goods-in-Transit. Goods-in-Transit and Freeport Property do not include oil, natural gas or petroleum products, and Goods-in-Transit does not include aircraft or special inventories such as manufactured housing inventory, or a dealer’s motor vehicle, boat, or heavy equipment inventory. A taxpayer may receive only one of the Goods-in-Transit or Freeport Property exemptions for items of personal property. Other Exempt Property. Other major categories of exempt property include property owned by the State or its political subdivisions if used for public purposes, property exempt by federal law, property used for pollution control, farm products owned by producers, property of nonprofit corporations used for scientific research or educational activities benefitting a college or university, designated historic sites, solar and wind-powered energy devices, and certain classes of intangible personal property. Tax Increment Reinvestment Zones. A city or county, by petition of the landowners or by action of its governing body, may create one or more tax increment reinvestment zones (“TIRZ”) within its boundaries. At the time of the creation of the TIRZ, a “base value” for the real property in the TIRZ is established and the difference between any increase in the assessed valuation of taxable real property in the TIRZ in excess of the base value is known as the “tax increment.” During the existence of the TIRZ, all or a portion of the taxes levied against the tax increment by a city or county, and all other overlapping taxing units that elected to participate, are restricted to paying only planned project and financing costs within the TIRZ and are not available for the payment of other obligations of such taxing units. Until September 1, 1999, school districts were able to reduce the value of taxable property reported to the State to reflect any taxable value lost due to TIRZ participation by the school district. The ability of the school district to deduct the taxable value of the tax increment that it contributed prevented the school district from being negatively affected in terms of state school funding. However, due to a change in law, local M&O tax rate revenue contributed to a TIRZ created on or after May 31, 1999 will count toward a school district’s Tier One entitlement (reducing Tier One State funds for eligible school districts) and will not be considered in calculating any school district’s Tier Two entitlement (see “CURRENT PUBLIC SCHOOL FINANCE SYSTEM – State Funding for School Districts”). Tax Limitation Agreements. The Texas Economic Development Act (Chapter 313, Texas Tax Code, as amended), allows school districts to grant limitations on appraised property values to certain corporations and limited liability companies to encourage economic development within the school district. Generally, during the last eight (8) years of the ten-year term of a tax limitation agreement, a school district may only levy and collect M&O taxes on the agreed-to limited appraised property value. For the purposes of calculating its Tier One and Tier Two entitlements, the portion of a school district’s property that is not fully taxable is excluded from the school district’s taxable property values. Therefore, a school district will not be subject to a reduction in Tier One or Tier Two State funds as a result of lost M&O tax revenues due to entering into a tax limitation agreement (see “CURRENT PUBLIC SCHOOL FINANCE SYSTEM – State Funding for School Districts”). For a discussion of how the various exemptions described above are applied by the District, see “THE PROPERTY TAX CODE AS APPLIED TO THE DISTRICT” herein. For a schedule of the reductions in assessed valuation attributable to the exemptions allowed by the District, see “APPENDIX A – FINANCIAL INFORMATION OF THE ISSUER.” District and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units, including the District, may appeal the determinations of the Appraisal District by timely initiating a protest with the Appraisal Review Board. Additionally, taxing units such as the District may bring suit against the Appraisal District to compel compliance with the Property Tax Code. Beginning in the 2020 tax year, owners of certain property with a taxable value in excess of the current year “minimum eligibility amount,” as determined by the State Comptroller, and situated in a county with a population of one million or more, may protest the determinations of an appraisal district directly to a three-member special panel of the appraisal review board, appointed by the chairman of the appraisal review board, consisting of highly qualified professionals in the field of property tax appraisal. The minimum eligibility amount is set at $50 million for the 2020 tax year, and is adjusted annually by the State Comptroller to reflect the inflation rate.

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The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases by the District and provides for taxpayer referenda that could result in the repeal of certain tax increases (see “TAX RATE LIMITATIONS – Public Hearing and Voter- Approval Tax Rate”). The Property Tax Code also establishes a procedure for providing notice to property owners of reappraisals reflecting increased property value, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The District is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. Taxes are due October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent and incurs an additional penalty of up to twenty percent (20%) if imposed by the District. The delinquent tax also accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. The Property Tax Code also makes provision for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes for certain taxpayers. Furthermore, the District may provide, on a local option basis, for the split payment, partial payment, and discounts for early payment of taxes under certain circumstances. District’s Rights in the Event of Tax Delinquencies Taxes levied by the District are a personal obligation of the owner of the property. On January 1 of each year, a tax lien attaches to property to secure the payment of all state and local taxes, penalties, and interest ultimately imposed for the year on the property. The lien exists in favor of each taxing unit, including the District, having power to tax the property. The District’s tax lien is on a parity with tax liens of such other taxing units. A tax lien on real property takes priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the District is determined by applicable federal law. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty, and interest. At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units, adverse market conditions, taxpayer redemption rights, or bankruptcy proceedings which restrain the collection of a taxpayer’s debt. Federal bankruptcy law provides that an automatic stay of actions by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases, post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. DISTRICT APPLICATION OF TAX CODE . . . The District does grant a State mandated $25,000 general residence homestead exemption. The District does grant a State mandated $10,000 residence homestead exemption for taxpayers who are at least 65 years of age or disabled. A taxpayer who qualifies for both the age 65 or older exemption and the disabled exemption must choose only one of the options to claim. The District does grant a State mandated residence homestead exemption for disabled veterans ranging from $5,000 to $12,000.

The District does not tax personal property not used in the production of income, such as personal automobiles.

The McLennan County Tax Assessor/Collectors Office (the “Tax Assessor/Collector”) collects taxes for the District.

The Tax Assessor/Collector does not allow split payments and does not give discounts for the early payment of taxes.

The District does not participate in a tax increment-financing zone.

The District does not grant tax abatements.

The District does not have a goods-in-transit policy in place.

The District does not grant a freeport property exemption.

Ad valorem taxes are not levied by the District against the exempt value of residence homesteads for the payment of debt.

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INVESTMENTS

INVESTMENTS . . . The District invests its funds in investments authorized by State law in accordance with investment policies approved by the Board of the District. Both State law and the District’s investment policies are subject to change. LEGAL INVESTMENTS . . . Under State law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than “A” or its equivalent; (6) bonds issued, assumed, or guaranteed by the State of Israel; (7) interest-bearing banking deposits that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, or otherwise meeting the requirements of the Texas Public Funds Investment Act; (8) certificates of deposit and share certificates that (i) are issued by or through an institution that has its main office or a branch in Texas and (a) are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund or their respective successors, (b) are secured as to principal by obligations described in clauses (1) through (7) above, or (c) secured in any other manner and amount provided by law for District deposits, or (ii) certificates of deposit where (a) the funds are invested by the District through a broker that has its main office or a branch office in the State of Texas and is selected from a list adopted by the District as required by law, or a depository institution that has its main office or a branch office in the State of Texas that is selected by the District; (b) the broker or the depository institution selected by the District arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the District, (c) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by the United States or an instrumentality of the United States, and (d) the District appoints the depository institution selected under (a) above, an entity as described by Section 2257.041(d) of the Texas Government Code, or a clearing broker-dealer registered with the United States Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 as custodian for the District with respect to the certificates of deposit issued for the account of the District; (9) fully collateralized repurchase agreements that (i) have a defined termination date, (ii) are fully secured by a combination of cash and obligations described in clause (1), (iii) require the securities being purchased by the District or cash held by the District to be pledged to the District, held in the District’s name and deposited at the time the investment is made with the District or with a third party selected and approved by the District, and (iv) are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State; (10) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time, and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (7) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than “A” or its equivalent or (c) cash invested in obligations described in clauses (1) through (7) above and clauses (12) through (15) below, (ii) securities held as collateral under a loan are pledged to the District, held in the District’s name and deposited at the time the investment is made with the District or a third party designated by the District, (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas, and (iv) the agreement to lend securities has a term of one year or less; (11) certain bankers’ acceptances if the bankers’ acceptance (i) has a stated maturity of 270 days or fewer from the date of issuance, (ii) will be, in accordance with its terms, liquidated in full at maturity, (iii) is eligible for collateral for borrowing from a Federal Reserve Bank, and (iv) is accepted by a State or Federal bank, if the short-term obligations of the accepting bank or its holding company (if the accepting bank is the largest subsidiary) are rated at least “A-1” or “P-1” or the equivalent by at least one nationally recognized credit rating agency; (12) commercial paper with (i) a stated maturity of 270 days or less from the date of issuance, and (ii) a rating of at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank; (13) no-load money market mutual funds that are (i) registered with and regulated by the United States Securities and Exchange Commission, (ii) provide the District with a prospectus and other information required by the Securities and Exchange Act of 1934; and (iii) comply with Federal Securities and Exchange Commission Rule 2a-7; (14) no-load mutual funds that are (i) registered with the United States Securities and Exchange Commission, (ii) have an average weighted maturity of less than two years, and (iii) either (a) have a duration of one year or more and are invested exclusively in obligations described in this paragraph, or (b) have a duration of less than one year and the investment portfolio is limited to investment grade securities, excluding asset- backed securities; (15) investment pools if the District has authorized investment in the particular pool and the pool invests solely in investments permitted by the Texas Public Funds Investment Act, and is continuously rated no lower than “AAA” or “AAA-m” or at an equivalent rating by at least one nationally recognized rating service; and (16) guaranteed investment contracts that (i) have a defined termination date, (ii) are secured by obligations which meet the requirements of the Texas Public Funds Investment Act in an amount at least equal to the amount of bond proceeds invested under such contract, and (iii) are pledged to the District and deposited with the District or with a third party selected and approved by the District.

The District may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary of its assets.

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In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution. The District is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity date of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. INVESTMENT POLICIES . . . Under State law, the District is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for District funds, maximum allowable stated maturity of any individual investment owned by the District, the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. As an integral part of its investment policy, the District is required to adopt a separate written investment strategy for each of the funds under its control. All District funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each fund’s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield. Under State law, District investments must be made “with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived”. At least quarterly the investment officers of the District shall submit an investment report detailing: (1) the investment position of the District, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and the fully accrued interest during the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) State law. No person may invest District funds without express written authority from the Board. ADDITIONAL PROVISIONS . . . Under State law, the District is additionally required to: (1) annually review its adopted policies and strategies, (2) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution, (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the District to disclose the relationship and file a statement with the Texas Ethics Commission and the Board of Trustees; (4) require the qualified representative of firms offering to engage in an investment transaction with the District to: (a) receive and review the District’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude investment transactions conducted between the District and the business organization that are not authorized by the District’s investment policy (except to the extent that this authorization is dependent on an analysis of the makeup of the District’s entire portfolio, requires an interpretation of subjective investment standards, or relates to investment transactions of the entity that are not made through accounts or other contractual arrangements over which the business organization has accepted discretionary investment authority), and (c) deliver a written statement in a form acceptable to the District and the business organization attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the District’s investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse purchase agreement; (8) restrict the investment in no-load mutual funds in the aggregate to no more than 15% of the District’s monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; and (10) at least annually review, revise, and adopt a list of qualified brokers that are authorized to engage in investment transactions with the District. CURRENT INVESTMENTS* TABLE 1 As of December 31, 2019, the District’s investable funds in the amount of $33,266,223.74 were invested in the following:

Type of Investment Amount Investment Pool – Lone Star Corp. $17,344,642.71 Certificates of Deposit 13,062,819.20 CDARS 2,054,123.03 Checking - IndependentBk 804,638.80 Total $33,266,223.74

_____________ *Unaudited.

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TAX MATTERS

OPINION . . . On the date of initial delivery of the Bonds, McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Bond Counsel to the District, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof (“Existing Law”), (1) interest on the Bonds for federal income tax purposes will be excludable from the “gross income” of the holders thereof and (2) the Bonds will not be treated as “specified private activity bonds” the interest on which would be included as an alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the “Code”). Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds (see “APPENDIX C - FORM OF LEGAL OPINION OF BOND COUNSEL”). In rendering its opinion, Bond Counsel will rely upon (a) certain information and representations of the District, including information and representations contained in the District’s federal tax certificate, (b) covenants of the District contained in the Bond documents relating to certain matters, including arbitrage and the use of the proceeds of the Bonds and the property financed or refinanced therewith, and (c) the certificate with respect to arbitrage by the Commissioner of Education regarding the allocation and investment of certain investments in the Permanent School Fund. Failure by the District to observe the aforementioned representations or covenants could cause the interest on the Bonds to become taxable retroactively to the date of issuance. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Bonds in order for interest on the Bonds to be, and to remain, excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Bonds to be included in gross income retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel is conditioned on compliance by the District with the covenants and requirements described in the preceding paragraph, and Bond Counsel has not been retained to monitor compliance with these requirements subsequent to the issuance of the Bonds. Bond Counsel’s opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel’s opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Bonds. A ruling was not sought from the Internal Revenue Service by the District with respect to the Bonds or the property financed or refinanced with proceeds of the Bonds. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the District as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability. FEDERAL INCOME TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT . . . The initial public offering price to be paid for one or more maturities of the Bonds may be less than the principal amount thereof or one or more periods for the payment of interest on the Bonds may not be equal to the accrual period or be in excess of one year (the “Original Issue Discount Bonds”). In such event, the difference between (i) the “stated redemption price at maturity” of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount. The “stated redemption price at maturity” means the sum of all payments to be made on the Bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year. Under Existing Law, any owner who has purchased such Original Issue Discount Bond in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see the discussion set forth below. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income. Under Existing Law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner’s basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Bond.

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The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. COLLATERAL FEDERAL INCOME TAX CONSEQUENCES . . . The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively. The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with Subchapter C earnings and profits, foreign corporations subject to the branch profits tax, taxpayers qualifying for the health insurance premium assistance credit and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations. THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM RECENTLY ENACTED LEGISLATION OR THE PURCHASE, OWNERSHIP AND DISPOSITION OF TAX-EXEMPT OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Under section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation. Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a “market discount” and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to “market discount bonds” to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A “market discount bond” is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the “revised issue price” (i.e., the issue price plus accrued original issue discount). The “accrued market discount” is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. STATE, LOCAL AND FOREIGN TAXES . . . Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons. INFORMATION REPORTING AND BACKUP WITHHOLDING . . . Subject to certain exceptions, information reports describing interest income, including original issue discount, with respect to the Bonds will be sent to each registered holder and to the IRS. Payments of interest and principal may be subject to backup withholding under section 3406 of the Code if a recipient of the payments fails to furnish to the payor such owner’s social security number or other taxpayer identification number (“TIN”), furnishes an incorrect TIN, or otherwise fails to establish an exemption from the backup withholding tax. Any amounts so withheld would be allowed as a credit against the recipient’s federal income tax. Special rules apply to partnerships, estates and trusts, and in certain circumstances, and in respect of Non-U.S. holders, certifications as to foreign status and other matters may be required to be provided by partners and beneficiaries thereof. FUTURE AND PROPOSED LEGISLATION . . . Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under federal or state law and could affect the market price or marketability of the Bonds. Any such proposal could limit the value of certain deductions and exclusions, including the exclusion for tax-exempt interest. The likelihood of any such proposal being enacted cannot be predicted. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters.

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CONTINUING DISCLOSURE OF INFORMATION

In the Order, the District has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the District will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified events, to the Municipal Securities Rulemaking Board (“MSRB”). For a description of the continuing disclosure obligations of the TEA, see “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM.” ANNUAL REPORTS . . . The District will provide certain updated financial information and operating data to the MSRB annually. The information to be updated includes all quantitative financial information and operating data with respect to the District of the general type included in this Official Statement in APPENDIX A and in APPENDIX D, which is the District’s annual audited financial report. The District will update and provide the information in APPENDIX A within six months after the end of each fiscal year ending in and after 2020 and, if not submitted as part of such annual financial information, the District will provide audited financial statements when and if available, and in any event, within 12 months after the end of each fiscal year. If the audit of such financial statements is not complete within 12 months after any such fiscal year end, then the District will file unaudited financial statements within such 12-month period and audited financial statements for the applicable fiscal year, when and if the audit report on such statements becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX D or such other accounting principles as the District may be required to employ from time to time pursuant to State law or regulation. The District's current fiscal year end is August 31. Accordingly, the District must provide updated information included in APPENDIX A by the last day of February in each year, and audited financial statements for the preceding fiscal year (or unaudited financial statements if the audited financial statements are not yet available) must be provided by August 31 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will file notice of the change (and of the date of the new fiscal year end) with the MSRB prior to the next date by which the District otherwise would be required to provide financial information and operating data as set forth above. All financial information, operating data, financial statements and notices required to be provided to the MSRB shall be provided in an electronic format and be accompanied by identifying information prescribed by the MSRB. Financial information and operating data to be provided as set forth above may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document) available to the public on the MSRB’s Internet Web site or filed with the Securities and Exchange Commission (the “SEC”), as permitted by SEC Rule 15c2-12 (the “Rule”). NOTICE OF CERTAIN EVENTS . . . The District also will provide timely notices of certain events to the MSRB. The District will provide notice of any of the following events with respect to the Bonds to the MSRB in a timely manner (but not in excess of ten (10) business days after the occurrence of the event): (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the District; (13) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (14) the appointment of a successor or additional paying agent/registrar or change of name of the paying agent/registrar, if material; (15) incurrence of a Financial Obligation of the District (as defined by the Rule, which includes certain debt, debt-like, and debt-related obligations), if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of any such financial obligation of the District, any of which affect security holders, if material; and (16) default, event of acceleration, termination event, modification of terms, or other similar events under the terms of any such Financial Obligation of the District, any of which reflect financial difficulties. In the Order, the District will adopt policies and procedures to ensure timely compliance of its continuing disclosure undertakings. In addition, the District will provide timely notice of any failure by the District to provide annual financial information in accordance with its agreement described above under “Annual Reports”. For these purposes, (a) any event described in clause (12) of the immediately preceding paragraph is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the District in a proceeding under the United States Bankruptcy Code or in any other proceeding under the state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the District, and (b) the

45

District intends the words used in the immediately preceding clauses (15) and (16) and in the definition of Financial Obligation above to have the meanings ascribed to them in SEC Release No. 34-83885 dated August 20, 2018. Neither the Bonds nor the Order make any provision for liquidity enhancement, credit enhancement (except for the Permanent School Fund Guarantee), or require the funding of debt service reserves. AVAILABILITY OF INFORMATION . . . All information and documentation filing required to be made by the District in accordance with its undertaking made for the Bonds will be made with the MSRB in electronic format in accordance with MSRB guidelines. Access to such filings will be provided, without charge to the general public, by the MSRB. LIMITATIONS AND AMENDMENTS . . . The District has agreed to update information and to provide notices of events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that has been provided except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the registered owners of the Bonds. The District may also amend or repeal the provisions of its continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the District so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS. . . With respect to the District's outstanding bonds, the District has entered into continuing disclosure undertakings, pursuant to which the District is obligated to file certain financial information and operating data of the general type included in Appendix A of the official statements relating to the District's outstanding bonds. In prior filings for fiscal years ending August 31, 2012 through August 31, 2016, certain information was inadvertently omitted from the District's annual filings. On November 2, 2017, the District filed a document containing all of the required financial information and operating data for fiscal year ending 2016. With the exception of the tables setting forth certain financial information and operating relating to overlapping governmental entities, the filing also included all required financial information and operating data for fiscal years ending 2012 through 2015 that either (1) were not included in the original annual filings or the audited financial statements for each respective fiscal year or (2) could not be extrapolated from such previously filed documents. All information has since been filed including a notice of late filing on November 2, 2017. The District has implemented procedures to ensure that the operating data filed in future years conforms to what is specified in applicable offering documents. Except as described herein, during the last five years, the District has complied in all material respects with all continuing disclosure agreements made by it in accordance with the Rule.


46

OTHER INFORMATION RATINGS . . . The District has made an application to Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”), for a rating on the Bonds. Moody’s and S&P have assigned municipal bond ratings of ____ and ____ respectively to the Bonds based upon the Permanent School Fund Guarantee. Moody’s and S&P generally rate all bond issues guaranteed by the Permanent School Fund of the State of Texas “Aaa” and “AAA” respectively. See “THE PERMANENT SCHOOL FUND GUARANTEE PROGRAM”. The District’s underlying rating on the Bonds (without consideration of the Permanent School Fund Guarantee or other credit enhancement) is “___” by Moody’s and “__” by S&P. The ratings reflect only the respective views of such organizations and the District makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating companies, if in the judgment of such companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. LITIGATION . . . The District is not a party to any litigation or other proceeding pending or to its knowledge, threatened, in any court, agency or other administrative body (either state or federal) which, if decided adversely to the District, would have a material adverse effect on the financial condition or operations of the District. At the time of the initial delivery of the Bonds, the District will provide the Underwriters with a certificate to the effect that no litigation of any nature has been filed or is then pending challenging the issuance of the Bonds they are purchasing or that affects the payment and security of said Bonds or in any other manner questioning the issuance, sale or delivery of the Bonds. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE . . . The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any other jurisdiction. The District assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. It is the obligation of the Underwriters to register or qualify the sale of the Bonds under the securities laws of any jurisdiction which so requires. The District agrees to cooperate, at the Underwriters’ written request and sole expense, in registering or qualifying the Bonds or in obtaining an exemption from registration or qualification in any state where such action is necessary; provided, however, that the District shall not be required to qualify as a foreign corporation or to execute a general or special consent to service of process in any jurisdiction. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS . . . Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments, investment securities governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of at least “A” or its equivalent as to investment quality by a national rating agency. See “OTHER INFORMATION – Ratings” herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the District has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGAL MATTERS . . . The District will furnish the Underwriters a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds are valid and legally binding obligations of the District, and based upon examination of such transcript of proceedings, the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under “TAX MATTERS” herein. Though it represents investment banking firms such as the Underwriters from time to time in matters unrelated to the issuance of the Bonds, Bond Counsel has been engaged by and only represents the District in connection with the issuance of the Bonds. Bond Counsel also advises the TEA in connection with its disclosure obligations under federal securities laws, but Bond Counsel has not passed upon any TEA disclosures contained in this Official Statement. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information (other than any financial, technical, or statistical data therein) in this Official Statement appearing under the captions and subcaptions "THE BONDS" (excluding the information under the subcaptions "Permanent School Fund Guarantee", “DTC Redemption Provisions”, "Book-Entry-Only-System", "Bondholders’ Remedies” and “Sources and Uses of Proceeds”,as to which no opinion is expressed),

47

"STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS", "CURRENT PUBLIC SCHOOL FINANCE SYSTEM", "TAX MATTERS", "CONTINUING DISCLOSURE OF INFORMATION" (except under the subcaption "Compliance with Prior Undertakings", as to which no opinion is expressed), "OTHER INFORMATION – Registration and Qualification of Bonds for Sale", "OTHER INFORMATION - Legal Investments and Eligibility to Secure Public Funds in Texas", and "OTHER INFORMATION - Legal Matters" (excluding the last sentence of the first paragraph, as to which no opinion is expressed) and such firm is of the opinion that the information contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Order. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriters by their counsel, Winstead, PC, San Antonio, Texas, whose legal fees of Underwriters’ counsel are contingent upon the delivery of the Bonds. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION . . . The financial data and other information contained herein have been obtained from the District’s records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, the Rule.

FINANCIAL ADVISOR . . . Specialized Public Finance Inc. is employed as Financial Advisor to the District in connection with the issuance of the Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. Specialized Public Finance Inc., in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the District has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the District and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. UNDERWRITING . . . The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the District, at a price equal to the initial offering prices to the public, as shown on page 2 of this Official Statement, less an underwriting discount of $________ and no accrued interest. The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement pursuant to its responsibilities to investors under the federal securities laws, but the Underwriters do not guarantee the accuracy or completeness of such information. Piper Sandler & Co., one of the underwriters of the Bonds, has entered into a distribution agreement (“Distribution Agreement”) with Charles Schwab & Co., Inc. (“CS&Co”) for the retail distribution of certain securities offerings including the Bonds, at the original issue prices. Pursuant to the Distribution Agreement, CS&Co. will purchase Bonds from Piper at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that CS&Co. sells. RBC Capital Markets, LLC ("RBCCM") has provided the following information for inclusion in this Official Statement. RBCCM and its respective affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, RBCCM and its respective affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). RBCCM and its respective affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this

48

securities offering or other offerings of the District. RBCCM and its respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the District. RBCCM and its respective affiliates may make a market in credit default swaps with respect to municipal securities in the future On November 4, 2019 First Horizon and IberiaBank announced its intention to enter into a merger, pending regulatory approval, creating a leading regional financial services company. The new company will retain the First Horizon name and will have its headquarters in Memphis, TN, while maintaining a significant operating presence in all of the markets in which both companies operate today. The transaction is expected to be completed in the second quarter of 2020, following the satisfaction of closing conditions, including approval by shareholders of both companies. Until all conditions, including regulatory approvals are provided, First Horizon and IberiaBank will continue to be separate, independent companies and until transaction closing, both companies will operate as they do today. FHN Financial Capital Markets is a division of First Horizon Bank and First Horizon Advisors, Inc., is a wholly owned subsidiary of First Horizon Bank. FHN Financial Capital Markets has entered into a distribution agreement with First Horizon Advisors, Inc., for the distribution of the offered Bonds at the original issue prices. Such arrangement generally provides that FHN Financial Capital Markets will share a portion of its underwriting compensation or selling concession with First Horizon Advisors, Inc. INFORMATION FROM EXTERNAL SOURCES…References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in the Rule. FORWARD-LOOKING STATEMENTS . . . The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District’s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the District on the date hereof, and the District assumes no obligation to update any such forward-looking statements. The District’s actual results could differ materially from those discussed in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate. MISCELLANEOUS . . . In the Bond Order, the Board authorized the Pricing Officer to approve, for and on behalf of the District, (i) the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and (ii) the Underwriters’ use of this Official Statement in connection with the public offering and the sale of the Bonds in accordance with the provisions of the Rule. Pricing Officer Midway Independent School District

APPENDIX A

FINANCIAL INFORMATION OF THE ISSUER

[This page is intentionally left blank.]

ASSESSED VALUATION

2019 Total Appraised Value $6,441,609,923

Less:

Homestead Exemption Loss $281,239,363

Over-65/Homestead Exemption Loss 44,864,840

Disabled Person/Surviving Spouse Exemption 1,884,620

Disabled Veteran/Surviving Spouse Exemption 6,137,646

Disabled Veteran/Surviving Spouse Homestead Exemption 91,055,473

Pollution Control Exemption Loss 9,877,867

First Responder Surviving Spouse Exemption 437,410

Solar Power Exemption Loss 232,591

Productivity Loss 132,885,466

Homestead Cap 31,022,709

2019 Net Taxable Assessed Valuation $5,841,971,938

GENERAL OBLIGATION BONDED DEBT[As of January 15, 2020]

General Obligation Debt Outstanding:

Unlimited Tax Debt:

Unlimited Tax School Building & Refunding Bonds, Series 2000 $734,005

Variable Rate Unlimited Tax School Building Bonds, Series 2008A 18,675,000

Unlimited Tax School Building Bonds, Series 2013 19,305,000

Unlimited Tax Refunding Bonds, Series 2015 36,275,000



The Bonds (1) 148,000,000

Total Unlimited Tax Debt(2) $234,944,005

Total General Obligation Debt $234,944,005

General Obligation Interest and Sinking Fund Balance as of August 31, 2019 $7,282,058

2019 Net Taxable Assessed Valuation

Ratio of Total General Obligation Debt to 2019 Net Taxable Assessed Valuation 4.02%

Area of District: 87 Square MilesEstimated Population: 52,419 in Year 2019

Per Capita 2019 Net Assessed Valuation: $111,448Per Capita 2019 General Obligation Debt: $4,482

FINANCIAL INFORMATION OF THE ISSUER

__________________________Note: The above figures were taken from the McLennan County Appraisal District which are compiled during the initial phase of the tax year and are subject tochange.

$5,841,971,938

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

(Table 1)

______________________________

(1) Preliminary, subject to change.(2) See "AD VALOREM TAX PROCEDURES" in the Official Statement for a description of the Issuer's taxation procedures.

A-1

ESTIMATED GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS(1)

Total

2020 $11,394,375 $11,394,375

2021 11,828,875 $7,194,444 $7,194,444 19,023,319

2022 11,826,025 $820,000 5,180,000 6,000,000 17,826,025

2023 11,824,775 850,000 5,151,300 6,001,300 17,826,075

2024 11,829,175 875,000 5,121,550 5,996,550 17,825,725

2025 11,833,025 1,075,000 5,090,925 6,165,925 17,998,950

2026 10,677,025 2,595,000 5,053,300 7,648,300 18,325,325

2027 10,444,225 3,245,000 4,962,475 8,207,475 18,651,700

2028 9,564,225 6,350,000 4,848,900 11,198,900 20,763,125

2029 2,700,563 9,060,000 4,626,650 13,686,650 16,387,213

2030 2,698,763 9,380,000 4,309,550 13,689,550 16,388,313

2031 2,702,500 9,705,000 3,981,250 13,686,250 16,388,750

2032 2,701,075 10,045,000 3,641,575 13,686,575 16,387,650

2033 2,784,925 10,310,000 3,290,000 13,600,000 16,384,925

2034 10,760,000 2,929,150 13,689,150 13,689,150

2035 11,135,000 2,552,550 13,687,550 13,687,550

2036 11,525,000 2,162,825 13,687,825 13,687,825

2037 11,925,000 1,759,450 13,684,450 13,684,450

2038 12,345,000 1,342,075 13,687,075 13,687,075

2039 12,775,000 910,000 13,685,000 13,685,000

2040 13,225,000 462,875 13,687,875 13,687,875

$114,809,550 $148,000,000 $74,570,844 $222,570,844 $337,380,394

TAX ADEQUACY

2019 Net Taxable Assessed Valuation

Estimated Maximum Annual Debt Service Requirements for Year Ending: 8/31/2028 $20,763,125

Less: Existing Debt Allotment 0

Less: Instructional Facilities Allotment 0

Net Debt Service Requirement $20,763,125

Indicated Interest and Sinking Fund Tax Rate $0.3657Indicated Interest and Sinking Fund Tax Levy at the following Collections: 98% $20,934,879

INTEREST AND SINKING FUND MANAGEMENT INDEX

General Obligation Interest and Sinking Fund Balance as of August 31, 2019 $7,282,058

2019 Interest and Sinking Fund Tax Levy at 98% Collections Produce 16,030,371

0

Plus: Instructional Facilities Allotment 0

Total Available for Debt Service $23,312,429

Less: General Obligation Debt Service Requirements, Fiscal Year Ending: 8/31/2020 11,394,375

Estimated Balance at Fiscal Year Ended 8/31/2020 $11,918,054

Plus: Existing Debt Allotment

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

YearEnding

8/31 Principal Interest(2)

The Bonds(1)

______________(1) Preliminary, subject to change. (2) Calculated at an assumed rate for illustration purposes only.

CombinedDebt

Service(1)

CurrentTotal

Debt Service

(2013, 2015, 2017 & 2018 OS)

$5,841,971,938

________________Note: See "Tax Data" herein.

A-2

ESTIMATED GENERAL OBLIGATION PRINCIPAL REPAYMENT SCHEDULE(1)

2020 $2,704,005 $2,704,005 $232,240,000

2021 8,195,000 8,195,000 224,045,000

2022 8,580,000 $820,000 9,400,000 214,645,000

2023 8,985,000 850,000 9,835,000 204,810,000

2024 9,415,000 875,000 10,290,000 194,520,000 17.21%

2025 9,865,000 1,075,000 10,940,000 183,580,000

2026 9,195,000 2,595,000 11,790,000 171,790,000

2027 9,325,000 3,245,000 12,570,000 159,220,000

2028 8,745,000 6,350,000 15,095,000 144,125,000

2029 2,170,000 9,060,000 11,230,000 132,895,000 43.44%

2030 2,265,000 9,380,000 11,645,000 121,250,000

2031 2,365,000 9,705,000 12,070,000 109,180,000

2032 2,470,000 10,045,000 12,515,000 96,665,000

2033 2,665,000 10,310,000 12,975,000 83,690,000

2034 10,760,000 10,760,000 72,930,000 68.96%

2035 11,135,000 11,135,000 61,795,000

2036 11,525,000 11,525,000 50,270,000

2037 11,925,000 11,925,000 38,345,000

2038 12,345,000 12,345,000 26,000,000

2039 12,775,000 12,775,000 13,225,000 94.37%

2040 13,225,000 13,225,000 0 100.00%

$86,944,005 $148,000,000 $234,944,005

8/31/2019 8/31/2018 8/31/2017 8/31/2016 8/31/2015

Revenues $15,160,930 $14,128,540 $13,161,626 $12,472,933 $11,826,622

Expenditures 14,204,396 12,993,215 12,325,800 11,856,701 11,698,105

$956,534 $1,135,325 $835,826 $616,232 $128,517

Other Financing Sources (Uses) $254,105 $430,579

Net Change in Fund Balances $956,534 $1,389,430 $835,826 $616,232 $559,096

Fund Balances, Beginning 6,325,524 4,936,094 4,100,268 3,484,036 2,924,940Fund Balances, Ending $7,282,058 $6,325,524 $4,936,094 $4,100,268 $3,484,036

(2000, 2017 & 2018 OS)COMPARATIVE STATEMENT OF DEBT SERVICE FUND

Fiscal Year Ended

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

_______________________ *Preliminary, subject to change.

The Bonds Principal

RepaymentSchedule*

Currently OutstandingObligations

PrincipalRepayment

Schedule

______________________ Note: The above figures were taken from the Issuer's Annual Financial Reports.

Increase (Decrease) in Fund Balance

Percentof Principal

Retired*

YearEnding

8/31

Combined Principal

RepaymentSchedule*

ObligationsRemaining

OutstandingEnd of the Year*

A-3

TAXABLE ASSESSED VALUATION FOR TAX YEARS 2015 – 2019

Tax

Year

2015 $4,447,328,673 (1) $126,309,831 2.92%

2016 4,715,922,135 (1) 268,593,462 6.04%

2017 4,986,584,635 (1) 270,662,500 5.74%

2018 5,142,817,576 (1) 156,232,941 3.13%

2019 5,841,971,938 (2) 699,154,362 13.59%

Mars Snackfood US LLC Food Packaging/Processing $170,939,640 2.93%

Allergan Inc. Pharmaceutical 135,404,920 2.32%

Coca Cola Company Beverage Manufacturing Plant 106,600,332 1.82%

Caterpillar Logistics Equipment 89,709,630 1.54%

Huck International Inc. Manufacturing 55,532,870 0.95%

Domtar Personal Care Manufacturing 49,206,530 0.84%

Vision Pharmaceuticals LP Manufacturing 42,725,610 0.73%

Lehigh White Cement Company Cement Plant 37,092,817 0.63%

Time Manufacturing Company Bucket Trucks, Lifts & Derricks 36,727,699 0.63%

Brazos Electric Power Coop Inc. Electrical Utility 34,036,730 0.58%

Total (12.97% of 2019 Net Taxable Assessed Valuation) $757,976,778 12.97%

VALUATION AND FUNDED DEBT HISTORY

FiscalYear

2015-16 $4,447,328,673 $106,655,832 2.40%2016-17 4,715,922,135 98,396,965 2.09%2017-18 4,986,584,635 98,206,965 1.97%2018-19 5,142,817,576 93,222,873 1.81%2019-20 5,841,971,938 234,944,005 * 4.02%

(2000, 2008A, 2017 & 2018 OS)

2019 Net TaxableAssessed ValuationType of Property

PRINCIPAL TAXPAYERS

(2013, 2015, 2017 & 2018 OS)

Change from Preceding YearNet TaxableAssessed Valuation

Name

______________________ Note: The above figures were taken from the Municipal Advisory Council of Texas, Texas Municipal Reports, the Issuer's Annual Financial Reports and the McLennan County Appraisal District.*Includes the Bonds; preliminary, subject to change.

Amount ($) Percent

__________________________Note: The above figures were taken from the McLennan County Appraisal District.

_________________________Note: The above figures were taken from the Issuer’s 2019 Annual Financial Report and the McLennan County Appraisal District.(1) The Issuer's 2019 Annual Financial Report.(2) The McLennan County Appraisal District.

(2000, 2008A, 2013, 2015, 2017 &2018 OS)

% of Total 2019Assessed Valuation

Net TaxableAssessed Valuation Bonds Outstanding

Ratio Debt to Assessed Valuation

A-4

% of % of % of2019 Total 2018 Total 2017 Total

Real, Residential, Single-Family $3,404,324,166 52.85% $3,149,979,593 52.53% $2,789,294,404 50.53%

Real, Residential, Multi-Family 300,295,679 4.66% 278,859,759 4.65% 206,695,323 3.74%

Vacant Lots/Tracts & Colonia Lots/Tracts 80,404,782 1.25% 87,905,023 1.47% 77,780,873 1.41%

Qualified Open-Space Land 138,484,692 2.15% 132,435,327 2.21% 114,969,828 2.08%

Real, Farm & Ranch Improvements 3,092,066 0.05% 2,899,197 0.05% 3,181,328 0.06%

Real, Rural Land Non Qualified 90,996,857 1.41% 84,635,670 1.41% 77,231,909 1.40%

Real, Commercial 721,736,545 11.20% 655,060,795 10.92% 652,607,971 11.82%

Real, Industrial 300,527,728 4.67% 316,260,765 5.27% 307,861,804 5.58%

Real, Minerals Oil and Gas 24,380 0.00% 13,036 0.00% 22,475 0.00%

Real & Tangible, Personal Utilities 94,449,608 1.47% 92,343,249 1.54% 85,764,170 1.55%

Tangible Personal, Commercial 755,101,080 11.72% 716,879,230 11.95% 682,790,977 12.37%

Tangible Personal, Industrial 495,572,840 7.69% 443,676,190 7.40% 489,196,743 8.86%

Tangible Personal, Mobile Homes 1,803,640 0.03% 1,941,790 0.03% 1,822,380 0.03%

Residential Inventory 37,137,320 0.58% 23,793,900 0.40% 20,084,980 0.36%

Special Inventory 17,658,540 0.27% 9,855,370 0.16% 11,050,910 0.20%

Total Appraised Value $6,441,609,923 100.00% $5,996,538,894 100.00% $5,520,356,075 100.00%

Less:

Homestead Exemption Loss $281,239,363 $274,616,554 $272,862,400

Over-65/Homestead Exemption Loss 44,864,840 42,356,520 40,617,959

Disabled Person/Surviving Spouse Exemption 1,884,620 1,825,000 1,975,000

Disabled Veteran/Surviving Spouse Exemption 6,137,646 5,685,367 5,622,129

Disabled Veteran/Surviving Spouse Homestead Exemption 91,055,473 73,704,916 60,971,190

Pollution Control Exemption Loss 9,877,867 10,778,089 13,479,359

First Responder Surviving Spouse Exemption 437,410 377,269 0

Solar Power Exemption Loss 232,591 175,219 171,889

Productivity Loss 132,885,466 126,791,041 109,466,922

Homestead Cap 31,022,709 64,707,140 28,604,592

Net Taxable Assessed Valuation $5,841,971,938 $5,395,521,779 $4,986,584,635

Tax Tax YearYear Levy Current Total Ended

2015 $4,447,328,673 $1.3200 99.52 99.99 8/31/2016

2016 4,715,922,135 1.3200 99.49 99.85 8/31/2017

2017 4,986,584,635 1.3200 99.58 100.11 8/31/2018

2018 5,142,817,576 1.3200 99.51 99.53 8/31/2019

2019 5,841,971,938 1.2500 8/31/2020

68,756,559

CLASSIFICATION OF ASSESSED VALUATION

__________________________Note: The above figures were taken from the McLennan County Appraisal District which is compiled during the initial phase of the tax year and are subject to change.

Taxes are due October 1 and become delinquent after January 31. No split payments or discounts are allowed. Penalties and Interest: (a) a delinquent taxincurs a penalty of six percent of the amount of the tax for the first calendar month it is delinquent plus one percent for each additional month or portion of amonth the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. However, a tax delinquent on July 1 incurs a total penalty of twelvepercent of the amount of the delinquent tax without regard to the number of months the tax has been delinquent; (b) a delinquent tax accrues interest at a rate ofone percent for each month or portion of a month the tax remains unpaid; and an additional penalty up to a maximum of 20% of taxes, penalty and interest maybe imposed to defray costs of collection for taxes delinquent after July 1. All percentage of collections set forth below exclude penalties and interest.

Net Taxable TaxRate

% CollectionsAssessed Valuation

TAX DATA

63,946,046

73,253,704

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

Category

(Table 2 in 2000 OS; 2008A, 2013, 2015, 2017 & 2018 OS)

______________________ Note: The above figures were taken from the Municipal Advisory Council of Texas, Texas Municipal Reports, the McLennan County Appraisal District, the McLennan County Tax Assessor-Collector's Office, the Issuer’s 2019 Annual Financial Report and information provided by the Issuer.

$56,883,891

60,062,799

(In Process)

A-5

OVERLAPPING DEBT DATA AND INFORMATION

(As of December 31, 2019)

Gross Debt

Hewitt, City of $45,840,000 99.47% $45,597,048

McGregor, City of 18,559,000 4.14% 768,343

McLennan County 41,890,000 26.47% 11,088,283

McLennan County JCD 55,350,000 26.47% 14,651,145

Waco, City of 461,150,000 24.68% 113,811,820

Woodway, City of 15,730,000 91.69% 14,422,837

$200,339,476

Midway ISD $234,944,005 * 100.00% $234,944,005

$435,283,481

Ratio of Direct and Overlapping Debt to the 2019 Assessed Valuation 7.45%$8,304

ASSESSED VALUATION AND TAX RATE OF OVERLAPPING ISSUERS

Governmental Subdivision 2019 Tax Rate

Hewitt, City of $1,008,342,875 $0.53968

McGregor, City of 434,778,521 0.60141

McLennan County 17,632,269,756 0.48529

McLennan County JCD 19,392,705,435 0.14770

Waco, City of 10,780,589,830 0.77623

Woodway, City of 1,250,365,820 0.45000

Hewitt, City of None

McGregor, City of None

McLennan County 11/05/19 $14,545,000 $0 $14,545,000

McLennan County JCD None

Waco, City of None

Woodway, City of None

Midway ISD 11/05/19 148,000,000 148,000,000 * 0

The following table indicates the indebtedness, defined as outstanding bonds payable from ad valorem taxes, of governmental entities overlapping the Districtand the estimated percentages and amounts of such indebtedness attributable to property within the District. Expenditures of the various taxing bodiesoverlapping the territory of the Issuer are paid out of ad valorem taxes levied by these taxing bodies on properties overlapping the Issuer. These politicaltaxing bodies are independent of the Issuer and may incur borrowings to finance their expenditures.

The following statements of direct and estimated overlapping ad valorem bonds were developed from information contained in the "Texas Municipal Reports"published by the Municipal Advisory Council of Texas. Except for the amounts relating to the Issuer, the Issuer has not independently verified the accuracy orcompleteness of such information, and no person should rely upon such information as being accurate or complete.

Furthermore, certain of the entities below may have authorized or issued additional bonds since the date stated below, and such entities may haveprograms requiring the authorization and/or issuance of substantial amounts of additional bonds, the amount of which cannot be determined.

Taxing Body % OverlappingAmount

Overlapping

AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS OF DIRECT AND OVERLAPPING GOVERNMENTAL SUBDIVISIONS

Total Gross Overlapping Debt

Total Direct and Overlapping Debt

Per Capita Direct and Overlapping Debt

____________________Source: Texas Municipal Reports published by the Municipal Advisory Council of Texas.*Includes the Bonds; preliminary, subject to change.

2019 Assessed Valuation

(2013, 2015, 2017 & 2018 OS)

IssuerDate of

Authorization PurposeAmount

Authorized Issued

To-Date Unissued

(2008A, 2013, 2017 & 2018 OS)

( 2013, 2015, 2017 & 2018 OS)

_______________________Source: Texas Municipal Reports published by the Municipal Advisory Council of Texas.*Includes the issuance of the Bonds. Preliminary, subject to change.

Zoo

School Building & Technology

_________________________Source: The McLennan County Appraisal District.

A-6

TAX RATE DISTRIBUTION

Tax Year 2019 2018 2017 2016 2015General Fund $0.9700 $1.0400 $1.0400 $1.0400 $1.0400I & S Fund 0.2800 0.2800 0.2800 0.2800 0.2800Total Tax Rate $1.2500 $1.3200 $1.3200 $1.3200 $1.3200

Fiscal Year Ended 8/31/2019 8/31/2018 8/31/2017 8/31/2016 8/31/2015(1)

Revenues:Total Local and Intermediate Sources $55,255,493 $52,388,355 $48,706,754 $46,147,591 $44,905,417 State Program Revenues 10,480,019 11,326,799 12,009,255 12,600,108 12,364,936Federal Program Revenues 682,500 919,031 948,358 836,334 835,799Total Revenues $66,418,012 $64,634,185 $61,664,367 $59,584,033 $58,106,152

Expenditures:Instruction $40,930,942 $37,687,872 $37,810,426 $36,141,297 $34,605,601Instruction Resources & Media Services 918,637 840,772 840,533 845,331 892,039Curriculum & Staff Development 1,220,423 1,100,278 1,100,124 1,048,245 1,019,549Instructional Leadership 1,594,837 1,254,532 936,317 834,849 842,331School Leadership 3,965,697 3,813,617 3,569,250 3,501,167 3,409,905Guidance, Counseling & Evaluation Services 2,396,928 2,103,521 2,642,960 2,539,467 2,343,241Social Work Services 119,463 71,713 46,849 53,747 55,759Health Services 727,051 669,005 599,613 555,973 542,364Student Transportation 2,258,762 1,929,273 1,588,060 1,633,987 1,667,457Extracurricular Activities 2,145,555 2,114,449 1,920,664 1,953,965 1,865,507General Administration 2,703,480 2,312,957 2,229,811 2,233,663 2,039,051Facilities Maintenance and Operations 6,726,962 6,495,116 5,797,459 5,724,979 5,587,381Security and Monitoring Services 537,175 414,456 384,790 392,338 380,139Data Processing Services 1,841,677 748,331 645,192 639,191 623,509Community Services 105,432 102,281 84,907 24,276 17,503Capital Outlay 4,300,550 147,589 25,723 24,174 1,327,736Facilities Acquisition and Construction 0 0 0 0 0Contracted Instructional Services Between Schools 0 0 925,611 0 733,947Other Governmental Charges 650,000 688,628 611,906 633,970 680,592Total Expenditures $73,143,571 $62,494,390 $61,760,195 $58,780,619 $58,633,611

($6,725,559) $2,139,795 ($95,828) $803,414 ($527,459)

Other Financing Sources (Uses):Transfer In $0 $141,327 $0 $0 $0 Transfers Out 0 0 0 0 0Extraordinary item - Proceeds from insurance 0 0 0 0 363,850Extraordinary item - Repairs due to hail damage 0 0 0 (113,761) (271,229)Extraordinary item - Repairs due to fire 0 0 0 0 0 Total Other Financing Sources (Uses) $0 $141,327 $0 ($113,761) $92,621

Net Change in Fund Balance ($6,725,559) $2,281,122 ($95,828) $689,653 ($434,838)Fund Balance - Beginning 24,031,160 21,750,038 21,848,866 21,159,213 21,594,051Fund Balance - Ending $17,305,601 $24,031,160 $21,753,038 $21,848,866 $21,159,213

(Table 3 in 2000 OS; 2008A, 2013, 2015, 2017 & 2018 OS)

_____________________Note: The above information was taken from the Issuer’s 2019 Annual Financial Report and the McLennan County Appraisal District.

Excess (Deficiency) of Revenues Over (Under) Expenditures

______________________Note: The above information was taken from the Issuer's Annual Financial Reports dated August 31, 2015-2019.(1) Due to the effects of implementing GASB Statement No. 68 "Accounting and Financial Reporting for Pensions", which was later amended by GASB Statement No. 71 "Pension Transition for Contributions Made Subsequent to the Measurement Date", prior years' balances are not comparable to Fiscal Year 2015.

GENERAL FUND COMPARATIVE STATEMENT OF REVENUES AND EXPENDITURES AND ANALYSIS OF CHANGES IN FUND BALANCES

(2000, 2008A, 2013, 2015, 2017 & 2018 OS)

A-7

Fiscal Year Ended 8/31/2019 8/31/2018 8/31/2017 8/31/2016 8/31/2015

Revenues:

Program revenues:Charges for services $2,984,409 $3,094,769 $2,896,637 $2,836,638 $2,682,668 Operating grants and contributions 12,729,687 (2,695,581) 9,920,145 10,711,440 8,327,998

General revenues:Maintenance and operations taxes 54,211,621 50,605,540 47,445,642 45,035,893 43,770,245Debt service taxes 14,593,179 13,624,841 12,774,313 12,123,793 11,784,660State aid - formula grants 8,488,141 8,164,738 9,269,888 9,933,994 9,869,781Investment earnings 1,235,660 730,463 385,901 275,228 271,934Miscellaneous local and intermediate 244,643 351,460 432,891 328,459 374,537

Total Revenues $94,487,340 $73,876,230 $83,125,417 $81,245,445 $77,081,823

Expenditures:Instruction $48,064,435 $30,046,739 $46,947,103 $43,541,138 $40,344,906Instruction Resources & Media Services 1,057,598 713,766 1,017,301 1,034,650 1,035,325Curriculum & Staff Development 1,295,879 842,894 1,221,903 1,196,640 1,082,299Instructional Leadership 2,126,267 970,782 1,062,455 973,673 925,922School Leadership 4,293,991 2,563,101 3,807,699 3,818,196 3,490,834Guidance, Counseling & Evaluation Services 2,604,158 1,629,342 2,833,221 2,756,878 2,405,638Social Work Services 109,206 43,265 47,843 56,466 55,059Data Processing Services 1,166,623 889,960 1,146,223 1,279,579 652,774Community Services 203,696 182,625 167,292 132,115 78,685Health Services 1,331,428 500,234 697,235 659,114 570,557Student (pupil) Transportation 1,980,794 1,850,480 2,133,288 2,212,877 2,194,656Food services 4,001,482 2,707,543 3,004,566 3,118,143 3,191,552Co-curricular/Extracurricular Activities 3,184,435 3,416,845 3,735,870 4,057,600 3,529,089General Administration 3,384,152 1,737,965 2,382,861 2,413,864 2,110,172Plant Maintenance and Operations 7,933,495 6,048,761 6,464,365 6,552,695 6,082,846Security and Monitoring Services 507,104 206,699 389,393 397,733 443,397Debt Service - interest on long-term debt 4,118,558 4,393,229 5,057,462 5,360,138 4,798,431Debt Service - bond issuance costs and fees 7,300 255,015 1,700 2,200 430,700Contracted Instructional Services Between Schools 0 0 928,611 0 733,947Fine Arts Center 0 0 0 0 0Midway Employee Pre-K 0 0 35,947 34,317 33,901High School Arena 0 0 0 0 0PEP fund 634,766 581,779 603,640 482,775 453,794Other Intergovernmental Charges 635,516 688,628 611,906 633,970 680,592Total Expenditures $88,640,883 $60,269,652 $84,297,884 $80,714,761 $75,325,076

$0 $0 $0 $0 $92,621

Increase in Net Position $5,846,457 $13,606,578 ($1,172,467) $530,684 $1,849,368

Net Position, Beginning $15,281,153 $40,877,692 $42,050,159 $41,519,475 $46,417,157 Prior Period Adjustment 0 (39,203,117) 0 0 (6,747,050)Net Position, Ending $21,127,610 $15,281,153 $40,877,692 $42,050,159 $41,519,475

Extraordinary Items

______________________Note: The above information was taken from the Issuer's Annual Financial Reports dated August 31, 2015-2019.

CHANGE IN NET POSITION (2000, 2008A, 2017 & 2018 OS)

A-8

2018 2019

Member 7.7% 7.7%

Non-Employer Contributing Entity (State) 6.8% 6.8%

Employers 6.8% 6.8%

Current Fiscal Year District Contributions $1,364,710

Current Fiscal Year Member Contributions $3,682,524

2019 NECE On-behalf Contributions $2,303,845

DEFINED BENEFIT PENSION PLAN

Plan Description. The District participates in a cost-sharing multiple-employer defined benefit pension that has a special funding situation. Theplan is administered by the Teacher Retirement System of Texas (TRS) and is established and administered in accordance with the TexasConstitution, Article XVI, Section 67 and Texas Government Code, Title 8, Subtitle C. The pension trust fund is a qualified pension trust underSection 401(a) of the Internal Revenue Code. The Texas Legislature establishes benefits and contribution rates within the guidelines of the TexasConstitution. The pension’s Board of Trustees does not have the authority to establish or amend benefit terms.

All employees of public, state-supported educational institutions in Texas who are employed for one-half or more of the standard work load andwho are not exempted from membership under Texas Government Code, Title 8, Section 822.002 are covered by the system.

Pension Plan Fiduciary Net Position. Detail information about the Teacher Retirement System’s fiduciary net position is available in aseparately-issued Comprehensive Annual Financial Report that includes financial statements and required supplementary information. That reportmay be obtained on the TRS website at www.trs.state.tx.us; by writing to TRS at 1000 Red River Street, Austin, TX, 78701-2698; or by calling(512) 542-6592.

(2013, 2015, 2017 & 2018 OS)

(To be continued on next page)

Contribution Rates

Benefits Provided. TRS provides service and disability retirement, as well as death and survivor benefits, to eligible employees (and theirbeneficiaries) of public and higher education in Texas. The pension formula is calculated using 2.3 percent (multiplier) times the average of thefive highest annual creditable salaries times years of credited service to arrive at the annual standard annuity except for members who aregrandfathered, the three highest annual salaries are used. The normal service retirement is at age 65 with 5 years of credited service or when thesum of the member’s age and years of credited service equals 80 or more years. Early retirement is at age 55 with 5 years of service credit orearlier than 55 with 30 years of service credit. There are additional provisions for early retirement if the sum of the member’s age and years ofservice credit total at least 80, but the member is less than age 60 or 62 depending on date of employment, or if the member was grandfathered inunder a previous rule. There are no automatic post-employment benefit changes; including automatic COLAs. Ad hoc post-employment benefitchanges, including ad hoc COLAs can be granted by the Texas Legislature as noted in the Plan description in (A) above.

Contributions. Contribution requirements are established or amended pursuant to Article 16, section 67 of the Texas Constitution which requiresthe Texas legislature to establish a member contribution rate of not less than 6% of the member’s annual compensation and a state contributionrate of not less than 6% and not more than 10% of the aggregate annual compensation paid to members of the system during the fiscal year. TexasGovernment Code section 821.006 prohibits benefit improvements, if as a result of the particular action, the time required to amortize TRS’unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, theperiod would be increased by such action.

Employee contribution rates are set in state statute, Texas Government Code 825.402. Senate Bill 1458 of the 83rd Texas Legislature amendedTexas Government Code 825.402 for member contributions and established employee contribution rates for fiscal years 2014 thru 2017. The 85thTexas Legislature, General Appropriations Act (GAA) affirmed that the employer contribution rates for fiscal years 2018 and 2019 would remainthe same.

A-9

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Individual Entry Age Normal

Market Value

6.91%

Long-Term expected Investment Rate of Return 7.25%

Inflation 2.30%

Salary Increases Including Inflation 3.05% to 9.05%

3.00%

Ad Hoc Post-Employment Benefit Changes None

Actuarial Assumptions. The total pension liability in the August 31, 2017 actuarial valuation was rolled forward to August 31, 2018 wasdetermined using the following actuarial assumptions:

DEFINED BENEFIT PENSION PLAN (continuation from previous page)

Contributors to the plan include members, employers and the State of Texas as the only non-employer contributing entity. The State is theemployer for senior colleges, medical schools and state agencies including TRS. In each respective role, the State contributes to the planin accordance with state statutes and the General Appropriations Act (GAA).

As the non-employer contributing entity for public education and junior colleges, the State of Texas contributes to the retirement systeman amount equal to the current employer contribution rate times the aggregate annual compensation of all participating members of thepension trust fund during that fiscal year reduced by the amounts described below which are paid by the employers. Employers (publicschool, junior college, other entities or the State of Texas as the employer for senior universities and medical schools) are required to paythe employer contribution rate in the following instances:

On the portion of the member's salary that exceeds the statutory minimum for members entitled to the statutoryminimum under Section 21.402 of the Texas Education Code.

During a new member’s first 90 days of employment.

When any part or all of an employee’s salary is paid by federal funding sources, a privately sponsored source, fromnon-educational and general, or local funds.

Single Discount Rate

The actuarial methods and assumptions are primarily based on a study of actual experience for the three-year period ending August 31,2017 and adopted in July 2018.

(To be continued on next page.)

Payroll Growth Rate

When the employing district is a public junior college or junior college district, the employer shall contribute to theretirement system an amount equal to 50% of the state contribution rate for certain instructional or administrativeemployees; and 100% of the state contribution rate for all other employees.

In addition to the employer contributions listed above, there are two additional surcharges an employer is subject to.

Actuarial Cost Method

Amortization Method

When employing a retiree of the Teacher Retirement System the employer shall pay both the member contribution andthe state contribution as an employment after retirement surcharge.

When a school district or charter school does not contribute to the Federal Old-Age, Survivors and Disability Insurance(OASDI) Program for certain employees, they must contribute 1.5% of the state contribution rate for certaininstructional or administrative employees; and 100% of the state contribution rate for all other employees.

A-10

DEFINED BENEFIT PENSION PLAN (continuation from previous page)

Asset Class

Target

Allocation1

Long-Term Expected Geometric

Real Rate of Return2

Expected Contribution to

Long-Term Portfolio Returns

Global Equity

U.S. 18.00% 5.70% 1.04%

Non-U.S. Developed 13.00% 6.90% 0.90%

Emerging Markets 9.00% 8.95% 0.80%

Directional Hedge Funds 4.00% 3.53% 0.14%

Private Equity 13.00% 10.18% 1.32%

Stable ValueU.S. Treasuries 11.00% 1.11% 0.12%Absolute Return 0.00% 0.00% 0.00%Stable Value Hedge Funds 4.00% 3.09% 0.12%Cash 1.00% 0.30% 0.00%

Real Return

Global Inflation Linked Bonds 3.00% 0.70% 0.02%

Real Assets 14.00% 5.21% 0.73%

Energy and Natural Resources 5.00% 7.48% 0.37%

Commodities 0.00% 0.00% 0.00%

Risk ParityRisk Parity 5.00% 3.70% 0.18%Inflation Expectation 2.30%

Volatility Drag3 -0.79%

1% Decrease in Discount Rate (5.907%)

Discount Rate (6.907%)

1% Increase in Discount Rate (7.907%)

$32,431,177 $21,488,419 $12,629,608


Discount Rate. The single discount rate used to measure the total pension liability was 6.907%. The single discount rate was based on theexpected rate of return on pension plan investments of 7.25 percent and a municipal bond rate of 3.69 percent. The projection of cash flows usedto determine the discount rate assumed that contributions from plan members and those of the contributing employers and the non-employercontributing entity are made at the statutorily required rates. Based on those assumptions, the pension plan’s fiduciary net position was sufficientto finance the benefit payments until the year 2069. As a result, the long-term expected rate of return on pension plan investments was applied toprojected benefit payments through the year 2069, and the municipal bond rate was applied to all benefit payments after that date. The long-termexpected rate of return on pension plan investments was determined using a building-block method in which best-estimates ranges of expectedfuture real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Theseranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target assetallocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in theSystems target asset allocation as of August 31, 2018 are summarized below:

Discount Rate Sensitivity Analysis. The following schedule shows the impact of the Net Pension Liability if the discount rate used was 1% lessthan and 1% greater than the discount rate that was used (6.907%) in measuring the net pension liability.

District's proportionate share of the net pension liability:

A-11

DEFINED BENEFIT PENSION PLAN (conclusion)

$21,488,419

37,666,295

Total $59,154,714

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Deferred Outflows of Resources Deferred Inflows of Resources

$133,941 $527,241

7,747,610 242,113

0 407,727

2,550,172 171,277

1,364,710 0

Total $11,796,433 $1,348,358

2020 $2,471,711

2021 1,613,678

2022 1,361,047

2023 1,415,312

2024 1,326,760

Thereafter 894,857

For the year ended August 31, 2019, the District’s pension expense of $6,926,757 and revenue of $3,727,959 for support provided by the State.

At August 31, 2019, the District’s proportionate share of the TRS’s deferred outflows of resources and deferred inflows of resources related topensions from the following sources:

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. At August31, 2019, the District reported a liability of $21,488,419 for its proportionate share of the TRS’s net pension liability. This liability reflects areduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pensionliability, the related State support, and the total portion of the net pension liability that was associated with the District were as follows:

District's proportionate share of the collective net pension liability

State's proportionate share that is associated with the District

The net pension liability was measured as of August 31, 2017 and rolled forward to August 31, 2018 and the total pension liability used to calculatethe net pension liability was determined by an actuarial valuation as of August 31, 2017 rolled forward to August 31, 2018. The employer’sproportion of the net pension liability was based on the employer’s contributions to the pension plan relative to the contributions of all employers tothe plan for the period September 1, 2017 thru August 31, 2018.

At August 31, 2018 the employer’s proportion of the collective net pension liability was 0.0390397378% which was a decrease of 0.0013275328%from its proportion measured as of August 31, 2017.

Changes Since the Prior Actuarial Valuation. There were no changes to the actuarial assumptions or other inputs that affected measurement of thetotal pension liability since the prior measurement period.

There were no changes of benefit terms that affected measurement of the total pension liability during the measurement period.

The Total Pension Liability as of August 31, 2018 was developed using a roll-forward method from the August 31, 2017 valuation.

Demographic assumptions including post-retirement mortality, termination rates, and rates of retirement were updated based on the experiencestudy performed for TRS for the period ending August 31, 2017.

Economic assumptions including rates of salary increase for individual participants was updated based on the same experience study.

The discount rate changed from 8.0 percent as of August 31, 2017 to 6.907 percent as of August 31, 2018.

The long-term assumed rate of return changed from 8.0 percent to 7.25 percent.

The change in the long-term assumed rate of return combined with the change in the single discount rate was the primary reason for the increasein the Net Pension Liability.

_____________________Note: The above information was taken from the Issuer's 2019 Annual Financial Report.

Differences between expected and actual economic experience

Changes in actuarial assumptions

Differences between projected and actual investment earnings

Changes in proportion and differences between the employer’s contributions and the proportionate share of contributions

Contributions paid to TRS subsequent to the measurement date

The net amounts of the employer’s balances of deferred outflows and inflows of resources related to pensions will be recognized in pension expenseas follows:

Year Ended August 31, Pension Expense Amount

A-12

DEFINED OTHER POST-EMPLOYMENT BENEFIT PLANS (Retiree Health Plan)

Retiree*

Retiree and Spouse

Retiree* and Children

Retiree and Family

2018 2019

Active Employee (Members) 0.65% 0.65%

Non-Employer Contributing Entity (NECE) - State 1.25% 1.25%

Employers 0.75% 0.75%

Federal/Private Funding Remitted by Employers 1.00% 1.25%

Current fiscal year employer contributions $339,121

Current fiscal year member contributions 359,691

2018 measurement year NECE on-behalf contributions 545,431

Contributions. Contribution rates for the TRS-Care plan are established in state statute by the Texas Legislature, and there is no continuing obligation to provide benefits beyond each fiscal year. The TRS-Care plan is currently funded on a pay-as-you-go basis and is subject to change based onavailable funding. Funding for TRS-Care is provided by retiree premium contributions and contributions from the state, active employees, and schooldistricts based upon public school district payroll. The TRS Board of trustees does not have the authority to set or amend contribution rates.

Texas Insurance Code, section 1575.202 establishes the state’s contribution rate which is 1.25% of the employee’s salary. Section 1575.203establishes the active employee’s rate which is .75% of pay. Section 1575.204 establishes an employer contribution rate of not less than 0.25 percentor not more than 0.75 percent of the salary of each active employee of the public. The actual employer contribution rate is prescribed by theLegislature in the General Appropriations Act. The following table shows contributions to the TRS-Care plan by type of contributor.

*or surviving spouse.


468 408

999

(2013, 2015, 2017 & 2018 OS)

TRS-Care Plan Premium RatesEffective January 1, 2018 - December 31, 2018

Year Medicare Non-Medicare

Plan Description. Midway Independent School District participates in the Texas Public School Retired Employees Group Insurance Program (TRS-Care). It is a multiple-employer, cost-sharing defined Other Post-Employment Benefit (OPEB) plan that has a special funding situation. The plan isadministered through a trust by the Teacher Retirement System of Texas (TRS) Board of Trustees. It is established and administered in accordancewith the Texas Insurance Code, Chapter 1575.

OPEB Plan Fiduciary Net Position. Detail information about the TRS-Care’s fiduciary net position is available in the separately-issued TRSComprehensive Annual Financial Report that includes financial statements and required supplementary information. That report may be obtained onthe TRS website at www.trs.state.tx.us; by writing to TRS at 1000 Red River Street, Austin, TX, 78701-2698; or by calling (512) 542-6592.

Eligible retirees and their dependents not enrolled in Medicare may pay premiums to participate in one of two optional insurance plans with morecomprehensive benefits (TRS-Care 2 and TRS-Care 3). Eligible retirees and dependents enrolled in Medicare may elect to participate in one of thetwo Medicare health plans for an additional fee. To qualify for TRS-Care coverage, a retiree must have at least 10 years of service credit in the TRSpension system. The Board of Trustees is granted the authority to establish basic and optional group insurance coverage for participants as well as toamend benefit terms as needed under Chapter 1575.052. There are no automatic postemployment benefit changes; including automatic COLAs.

The premium rates for the optional health insurance are based on years of service of the member. The schedule below shows the monthly rates for aretiree with and without Medicare coverage.

Benefits Provided. TRS-Care provides a basic health insurance coverage (TRS-Care 1), at no cost to all retirees from public schools, charter schools,regional education service centers and other educational districts who are members of the TRS pension plan. Optional dependent coverage is availablefor an additional fee.

1,020

$135 $200

529 689

A-13

DEFINED OTHER POST-EMPLOYMENT BENEFIT PLANS (continuation)

Rate of Mortality Rates of Termination General Inflation Expected Payroll Growth

Rate of Retirement Rates of Disability Incidence Wage Inflation

Additional Actuarial Methods and Assumptions:

Actuarial Cost Method Individual Entry Age Normal

Inflation

Discount Rate

Aging Factors Based on plan specific experience

Expenses

Payroll Growth Rate

Projected Salary Increases 2.50% - 9.50%

Healthcare Trend Rates 4.50% - 8.50%

Election Rates


Actuarial Assumptions. The total OPEB liability in the August 31, 2017 was rolled forward to August 31, 2018. The actuarial valuationdetermined using the following actuarial assumptions:

TRS-Care received supplemental appropriations from the State of Texas as the Non-Employer Contributing Entity in the amount of $182.6million in fiscal year 2018. The 85th Texas Legislature, House Bill 30 provided an additional $212 million in one-time, supplemental funding forthe FY 2018-2019 biennium to continue to support the program. This was also received in FY 2018 bringing the total appropriations received infiscal year 2018 to $394.6 million.

Discount Rate. A single discount rate of 3.69% was used to measure the total OPEB liability. There was an increase of .27 percent in thediscount rate since the previous year. Because the plan is essentially a “pay-as-you-go” plan, the single discount rate is equal to the prevailingmunicipal bond rate. The projection of cash flows used to determine the discount rate assumed that contributions from active members and thoseof the contributing employers and the non-employer contributing entity are made at the statutorily required rates. Based on those assumptions, theOPEB plan’s fiduciary net position was projected to not be able to make all future benefit payments of current plan members. Therefore, themunicipal bond rate was applied to all periods of projected benefit payments to determine the total OPEB liability.

In addition to the employer contributions listed above, there is an additional surcharge all TRS employers are subject to (regardless of whether ornot they participate in the TRS Care OPEB program). When employers hire a TRS retiree, they are required to pay to TRS Care, a monthlysurcharge of $535 per retiree.

Other Information. The total OPEB liability as of August 31, 2018 was developed using the roll forward method of the August 31, 2017valuation. Adjustments were made for retirees that were known to have discontinued their health care coverage in fiscal year 2018. The healthcare trend rate assumption was updated to reflect the anticipated return of the Health Insurer Fee (HIF) in 2020. Demographic and economicassumptions were updated based on the experience study performed for TRS for the period ending August 31, 2017. The discount rate changedfrom 3.42 percent as of August 31, 2017 to 3.69 percent, as of August 31, 2018. This change lowered the total OPEB liability $2.3 billion.


2.30%

3.69%. Sourced from fixed income municipal bonds with 20 years to maturity thatinclude only federal tax-exempt municipal bonds as reported in Fidelity Index's "20-YearMunicipal GO AA Index" as of August 31, 2018.

3.00%

Third-party administrative expenses related to the delivery of health care benefits areincluded in the age adjusted claim costs

Normal Retirement: 70% participation prior to age 65 and 75% participation after age 65.

A-14

DEFINED OTHER POST-EMPLOYMENT BENEFIT PLANS (continuation)

1% Decrease in Discount Rate (2.69%)

1% Increase in Discount Rate (4.69%)

$32,391,002 $27,211,473 $23,114,132

District's proportionate share of the net OPEB liability: $27,211,473

State's proportionate share that is associated with the District $39,533,897

$66,745,370

1% Decrease in Healthcare Trend Rate (7.5%)

1% Increase in Healthcare

Trend Rate (9.5%)

$22,599,571 $27,211,473 $33,285,447

●

●

●

●

●

●

●

Premium data submitted was not adjusted for permissible exclusions to the Cadillac Tax.

Discount Rate Sensitivity Analysis. The following schedule shows the impact of the Net OPEB Liability if the discount rate used was 1% lessthan the discount rate that was used (3.69%) in measuring the Net OPEB Liability.

Current Single Healthcare Trend Rate (8.5%)

Proportionate share of net OPEB liability:

Demographic and economic assumptions were updated based on the experience study performed for TRS for the period ending August 31,2017. This changed increased the total OPEB liability.

Changes Since the Prior Actuarial Valuation. The following were changes to the actuarial assumptions or other inputs that affectedmeasurement of the total OPEB liability since the prior measurement period:

Adjustments were made for retirees that were known to have discontinued their health care coverage in fiscal year 2018. This changeincreased the total OPEB liability.

The health care trend rate assumption was updated to reflect the anticipated return of the Health Insurer Fee (HIF) in 2020. This changeincreased the total OPEB liability.

At August 31, 2018 the employer’s proportion of the collective Net OPEB Liability was 0.0390397378%, which was an increase of.0013275328% from its proportion measured as of August 31, 2017.

Healthcare Cost Trend Sensitivity Analysis. The following schedule shows the impact of the Net OPEB Liability if a healthcare trend rate thatis 1% less than and 1% greater than the assumed 8.5% rate used.

There were no special adjustments to the dollar limit other than those permissible for non-Medicare retirees over 55.


Current Single Discount Rate (3.69%)

District's proportionate share of the net OPEB liability:

OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEBs. At August31, 2019, the District reported a liability of $27,211,473 for its proportionate share of the TRS’s Net OPEB Liability. This liability reflects areduction for State OPEB support provided to the District. The amount recognized by the District as its proportionate share of the net OPEBliability, the related State support, and the total portion of the net OPEB liability that was associated with the District were as follows:

The Net OPEB Liability was measured as of August 31, 2017 and rolled forward to August 31, 2018 and the Total OPEB Liability used tocalculate the Net OPEB Liability was determined by an actuarial valuation as of that date. The employer’s proportion of the Net OPEB Liabilitywas based on the employer’s contributions to OPEB relative to the contributions of all employers to the plan for the period September 1, 2017 thruAugust 31, 2018.

The discount rate changed from 3.42 percent as of August 31, 2017 to 3.69 percent as of August 31, 2018. This change lowered the totalOPEB liability $2.3 billion.

Results indicate that the value of the excise tax would be reasonably represented by a 25-basis point addition to the long-term trend rateassumption.

In this valuation the impact of the Cadillac Tax has been calculated as a portion of the trend assumption. Assumptions and methods used todetermine the impact of the Cadillac Tax include:

2019 thresholds of $850/$2,292 were indexed annually by 2.50 percent.

A-15

DEFINED OTHER POST-EMPLOYMENT BENEFIT PLANS (conclusion)

●

●

●

●

●

Deferred Outflows of Resources

Deferred Inflows of Resources

Differences between expected and actual actuarial experiences $1,444,012 $429,437

Changes in actuarial assumptions 454,086 8,175,486

Differences between projected and actual investment earnings 4,759 0

1,689,445 0

339,121 0

Total as of fiscal year-end $3,931,423 $8,604,923

2020 ($860,812)

2021 (860,812)

2022 (860,812)

2023 (861,712)

2024 (862,227)

Thereafter (706,246)

HEALTH CARE COVERAGE

_____________________Note: The above information was taken from the Issuer’s 2019 Annual Financial Report.

(Table 11 in 2013, 2015, 2017 & 2018 OS)

_____________________Note: The above information was taken from the Issuer’s 2019 Annual Financial Report.

The net amounts of the employer’s balances of deferred outflows and inflows of resources related to OPEB will be recognized in OPEBexpense as follows:

Change of Benefit Terms Since the Prior Measurement Date. The 85th Legislature, Regular Session, passed the following changes inHouse Bill 3976 which became effective on September 1, 2017:

At August 31, 2019, the District reported its proportionate share of the TRS’s deferred outflows of resources and deferred inflows ofresources related to other post-employment benefits from the following sources:

Created a high-deductible plan that provides a zero cost for generic prescriptions for certain preventive drugs and provides a zeropremium for disability retirees who retired as a disability retiree on or before January 1, 2017 and are not eligible to enroll in Medicare.

Created a single Medicare Advantage plan and Medicare prescription drug plan and Medicare prescription drug plan for all Medicare-eligible participants.

Allowed the system to provide other, appropriate health benefits plans to address the needs of enrollees eligible for Medicare.

Allowed eligible retirees and their eligible dependents to enroll in TRS-Care when the retiree reaches 65 years of age, rather thanwaiting on the next enrollment period.

Eliminated free coverage under TRS-Care, except for certain disability retirees enrolled during plan years 2018 through 2021, requiringmembers to contribute $200 per month toward their health insurance premiums.

The Teachers Retirement System (TRS) manages TRS Active Care. The medical plan is administered by Blue Cross and Blue Shield ofTexas, FIRSTCARE and Scott and White HMO. Medco Health administers the prescription drug plan. The latest financial information onthe statewide plan may be obtained by writing to the TRS Communications Department, 1000 Red River Street, Austin, Texas 78701, bycalling the TRS Communications Department at 1-800-223-8778, or by downloading the report from the TRS Internet website,www.trs.state.tx.us, under the TRS Publications heading.

Contributions paid to OPEB subsequent to the measurement date

For the Year Ended June 30 OPEB Expense

For the year ended August 31, 2019, the District recognized OPEB expense of $2,280,629 and revenue of $1,438,006 for support providedby the State.

Changes in proportion and difference between the employer’s contributions and the proportionate share of contributions

During the period ended August 31, 2019, employees of the District were covered by a state-wide health care plan, TRS Active Care. TheDistrict’s participation in this plan is renewable annually. The District paid into the Plan $325 per month per employee. Employees, at theiroption, pay premiums for any coverage above these amounts as well as for dependent coverage.

A-16

APPENDIX B

GENERAL INFORMATION REGARDING THE DISTRICT

B-1

GENERAL INFORMATION REGARDING THE DISTRICT, THE CITIES OF WOODWAY, HEWITT, WACO and MCGREGOR, AND

MCLENNAN OUNTY, TEXAS The District: The Midway Independent School District (the “District”) is an industrial, residential, and agricultural area located southwest and adjacent to Waco, Texas. The District includes the cities of Woodway and Hewitt. The District’s 2020 estimated population is 52,419. The Schools:

Historical Enrollment for the District

School Year Enrollment

2015-16 7,758

2016-17 7,882

2017-18 8,036

2018-19 8,302

2019-20 8,347

Enrollment and School Facilities

Educational status of the teachers is as follows:

Doctorate’s degree 3

Master’s degree 156

Bachelor’s degree 578

Average years of classroom experience per teacher 12 Personnel distribution is as follows:

District Level Administrators 25

Building Level Administrators 30

Instructional Staff 569

Professional Support Staff (Counselors, Librarians, Nurses, Social Workers, Etc.) 137

General Personnel (Secretaries, Aides, Clerks, Bus Drivers, Food Service, Maintenance, Etc.) 423

TOTAL 1,184 Teacher salaries are competitive with surrounding districts. Teacher salaries are $45,500 for beginning teachers.

School Grades Number of Students Elementary Schools PreK-4th 3,275 Elementary Schools Employee Pre-K, K - 4th 3,305 Elementary Schools K-4th 3,060

Intermediate 5th - 6th 1,285 Middle School 7th - 8th 1,320 High School 9th - 12th 2,437

B-2

THE CITIES OF WOODWAY, HEWITT, MCGREGOR AND WACO, AND MCLENNAN COUNTY, TEXAS

The City of Woodway. The City of Woodway is a residential suburb of Waco, located on U.S. Highway 84 and Highway 6. The City of Hewitt. The City of Hewitt is a residential suburb of the City of Waco, located approximately eight miles south of the central business district of Waco. The City of Hewitt has the benefits of country living and the attractions and activities of neighboring Waco. The City of McGregor. The City of McGregor is a manufacturing and commercial center located 15 miles west of Waco on U.S. Highway 84. The City of Waco. The City of Waco (the “City”) is the county seat of McLennan County and a major commercial and industrial center of Central Texas. The City is located 90 miles south of Dallas and six highways intersect the City including I-35. The City is the approximate geographic center of the Texas population, being within 100 miles of 24% of the State's population of almost 15 million people. The central location in the State makes the City commercially attractive as a distribution center for trade goods of all kinds. Lake Waco provides recreational activities for the City. The Texas Ranger Hall of Fame, Texas Sports Hall of Fame and the Dr. Pepper Museum are located in the City. McLennan County, Texas. McLennan County, Texas (the “County”) was created and organized in 1850. The county is traversed by Interstate Highway 35; U.S. Highways 77 and 84; State Highways 6, 31, and 317; and 29 farm-to-market and park roads. The county economy has experienced a growth trend from new industry, expansions of existing industry, and new commercial investment that is generating service sector and manufacturing jobs. The county seat is Waco. Economic Base: Mineral: Sand, oil, gravel and gas. Agricultural: Wheat, hay, dairy, corn and beef cattle. Industry: Space exploration, education diversified manufacturing and agribusiness. Oil & Gas 2018: The County ranks 202 out of all the counties in Texas for oil production. Oil Production: Year Description Volume %Change from Previous Year) 2017 Oil 665 BBL -15.57 2018 Oil 547 BBL -3.66 Retail Sales & Effective Buying Income: Year 2018 2017 2016 Retail Sales $5.6B $3.9B $3.5M Effective Buying Income (EBI) $5.5B $5.0B $4.8B County Median Household Income $44,275 $40,237 $38,407 State Median Household Income $61,175 $57,227 $55,352 % of Households with EBI below $25K 26.9% 30.3% 13.9% % of Households with EBI above $25K 65.7% 62.6% 62.4%

Employment Data: 2019 2018 2017 Employed Earnings Employed Earnings Employed Earnings 1st Quarter: 112,359 $1.3B 111,573 $1.3B 112,344 $1.2B 2nd Quarter: 113,498 $1.3B 113,469 $1.3B 112,575 $1.2B 3rd Quarter: N/A N/A 113,733 $1.3B 112,335 $1.2B 4th Quarter: N/A N/A 115,078 $1.4B 112,789 $1.3B Major Colleges and Universities: Texas State Technical Colleges Waco Campus, McLennan Community College, Baylor University

_________________ Source: Texas Municipal Reports published by the Municipal Advisory Council of Texas and DemographicsUSA County Edition. Any data on population, value added by manufacturing or production of minerals or agricultural products are from US Census or other official sources.

Labor Force Statistics: Nov. 2019 Oct. 2019 Nov. 2018 Monthly Change Year Ago Change % Unemployment (U.S.) 3.3 3.3 3.5 0.0 -0.2 % Unemployment (Texas) 3.3 3.3 3.5 0.0 -0.2 % Unemployment (McLennan County) 3.1 3.1 3.2 0.0 -0.1

2019* 2018 2017 2016 2015 % Unemployment (U.S.) 3.3 3.7 4.1 4.5 4.8 % Unemployment (Texas) 3.3 3.6 4.0 4.5 4.2 % Unemployment (McLennan County) 3.1 3.3 3.3 3.7 3.6

_______________________________ Source: Texas Labor Market Review. *As of November 2019.

APPENDIX C

FORM OF BOND COUNSEL’S OPINION

Proposed Form of Opinion of Bond Counsel

An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material

changes in facts or law.

MIDWAY INDEPENDENT SCHOOL DISTRICT UNLIMITED TAX SCHOOL BUILDING BONDS, SERIES 2020

IN THE AGGREGATE PRINCIPAL AMOUNT OF $_____

AS BOND COUNSEL for the Midway Independent School District (the "Issuer"), the issuer of the Bonds described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the date specified in the text of the Bonds, at the rates and payable on the dates as stated in the text of the Bonds, maturing all in accordance with the terms and conditions stated in the text of the Bonds.

WE HAVE EXAMINED the applicable and pertinent provisions of the

Constitution and laws of the State of Texas, and a transcript of certified proceedings of the Issuer, and other pertinent instruments authorizing and relating to the issuance of the Bonds, including executed Bond Number T-1.

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Bonds have

been authorized and issued and the Bonds delivered concurrently with this opinion have been duly delivered and that, assuming due authentication, Bonds issued in exchange therefore will have been duly delivered, in accordance with law, and that the Bonds, except as may be limited by laws applicable to the Issuer relating to bankruptcy, reorganization and other similar matters affecting creditors' rights generally, and by governmental immunity and general principles of equity which permit the exercise of judicial discretion, constitute valid and legally binding obligations of the Issuer, and ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Bonds have been levied and pledged for such purpose, without limit as to rate or amount.

IT IS FURTHER OUR OPINION, except as discussed below, that the interest on

the Bonds is excludable from the gross income of the owners for federal income tax purposes under the statutes, regulations, published rulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds are not "specified private activity bonds" and that, accordingly, interest on the Bonds will not be included as an individual alternative minimum tax preference item under section 57(a)(5) of the Internal Revenue Code of 1986 (the "Code").

IN EXPRESSING THE AFOREMENTIONED OPINIONS, we have relied on and assume continuing compliance with, certain representations contained in the federal tax certificate of the Issuer and covenants set forth in the order adopted by the Issuer to authorize the issuance of the Bonds, relating to, among other matters, the use of the project and the investment and expenditure of the proceeds and certain other amounts used to pay or to secure the payment of debt service on the Bonds and the certificate with respect to arbitrage by the Commissioner of Education regarding the allocation and investment of certain investments in the Permanent School Fund, the accuracy of which we have not independently verified. We call your attention to the fact that if such representations are determined to be inaccurate or if the Issuer fails to comply with such covenants, interest on the Bonds may become includable in gross income retroactively to the date of issuance of the Bonds.

EXCEPT AS STATED ABOVE, we express no opinion as to any other federal,

state, or local tax consequences of acquiring, carrying, owning, or disposing of the Bonds, including the amount, accrual or receipt of interest on, the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds.

OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to

change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes.

OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as

Bond Counsel for the Issuer, and, in that capacity, we have been engaged by the Issuer for the sole purpose of rendering our opinions with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes, and for no other reason or purpose. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such

opinions and are not a guarantee of a result. We have not been requested to investigate or verify, and have not independently investigated or verified, any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the disclosure thereof in connection with the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the Issuer as to the current outstanding indebtedness of, and assessed valuation of taxable property within the Issuer. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein.

Respectfully,

APPENDIX D

EXCERPTS FROM THE MIDWAY ISD, TEXAS

ANNUAL FINANCIAL REPORT For the Year Ended August 31, 2019

The information contained in this APPENDIX consists of excerpts from the Midway Independent School District, Texas Annual Financial Report for the Year Ended August 31, 2019, and is not intended to be a complete statement of the District’s financial condition. Reference is made to the complete Report for further information

MIDWAY INDEPENDENT SCHOOL DISTRICT

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED

AUGUST 31, 2019

THIS PAGE LEFT BLANK INTENTIONALLY


ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2019

TABLE OF CONTENTS

Exhibit Page

Certificate of Board ................................................................................................. 1 Independent Auditor’s Report................................................................................... 2 Management’s Discussion and Analysis ..................................................................... 4

Basic Financial Statements

Government-wide Statements: A-1 Statement of Net Position ........................................................................................ 9 B-1 Statement of Activities ............................................................................................ 11

Governmental Fund Financial Statements: C-1 Balance Sheet ........................................................................................................ 13 C-2 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position .................................................................................. 15

C-3 Statement of Revenues, Expenditures, and Changes in Fund Balance ............................ 16

C-4 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ............. 18

Proprietary Fund Financial Statements: D-1 Statement of Net Position ........................................................................................ 19 D-2 Statement of Revenues, Expenses, and Changes in Fund Net Position ........................... 20 D-3 Statement of Cash Flows ......................................................................................... 21

Fiduciary Fund Financial Statements: E-1 Statement of Fiduciary Net Position .......................................................................... 22 E-2 Statement of Changes in Fiduciary Fund Net Position .................................................. 23

Notes to the Financial Statements ............................................................................ 24 Required Supplementary Information G-1 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual – General Fund ...................................................................... 46

G-2 Schedule of the District’s Proportionate Share of the Net Pension Liability ..................... 48 G-3 Schedule of District Contributions – Teacher Retirement System .................................. 50

G-4 Schedule of the District’s Proportionate Share of the Net OPEB Liability ......................... 52

G-5 Schedule of District OPEB Contributions – Teacher Retirement System .......................... 53

Notes to Required Supplementary Information ........................................................... 54 Combining Statements Nonmajor Governmental Funds: H-1 Combining Balance Sheet ........................................................................................ 55

H-2 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances .......... 59 Nonmajor Enterprise Funds: H-3 Combining Statement of Net Position – Nonmajor Enterprise Funds .............................. 63

H-4 Combining Statement of Revenues, Expenses, and Changes in Fund Net Position ........... 64 H-5 Combining Statement of Cash Flows ......................................................................... 65 Required TEA Schedules

J-1 Schedule of Delinquent Taxes Receivable .................................................................. 66 J-4 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual – Child Nutrition Program ........................................................ 68 J-5 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual – Debt Service Fund ............................................................... 69

Federal Awards Section

Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .............. 70

Independent Auditor’s Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 .............................................. 72 K-1 Schedule of Expenditures of Federal Awards .............................................................. 74

Notes to Schedule of Expenditures of Federal Awards.................................................. 75 Schedule of Findings and Questioned Costs ............................................................... 76 Summary Schedule of Prior Audit Findings ................................................................. 77

INDEPENDENT AUDITOR’S REPORT Board of Trustees of

Midway Independent School District Hewitt, Texas Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-

type activities, each major fund, and the aggregate remaining fund information of Midway Independent School District as of and for the year ended August 31, 2019, and the related notes to the financial statements, which collectively comprise Midway Independent School District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements

Midway Independent School District’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted

our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our audit opinions.

2

3

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Midway Independent School District as of August 31, 2019, and the respective changes in financial position, and, where applicable cash flows thereof for the year then

ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s

discussion and analysis and required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in

accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for

consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Midway Independent School District’s basic financial statements. The combining statements, required TEA schedules and the Schedule of Expenditures of Federal Awards, as required by the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) are presented for purposes of additional analysis

and are not a required part of the basic financial statements. The combining statements, required TEA schedules and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records

used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements, required TEA schedules and the Schedule of Expenditures of Federal Awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December

17, 2019, on our consideration of Midway Independent School District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal

control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Midway Independent School District’s internal control over financial reporting and compliance.

Waco, Texas December 17, 2019

4

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our discussion and analysis of Midway Independent School District’s financial performance provides an

overview of the District’s financial activities for the fiscal year ended August 31, 2019. Please read it in conjunction with the District’s financial statements, which begin on page 9. FINANCIAL HIGHLIGHTS

• The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $21,127,610. Of

this amount, ($17,929,190) may be used to meet the District’s ongoing obligations to students and creditors.

• The District’s total net position increased by $5,846,457. • As of the close of the current fiscal year, the District’s governmental funds reported combined

ending fund balances of $30,430,873, an decrease of $1,394,370 in comparison with the

prior year. • At the end of the current fiscal year, the unassigned fund balance for the General Fund was

$20,775,661, or 29.3% of total General Fund expenditures. • During Fiscal Year 2019, the District used fund balance from the General Fund to purchase

land and buildings in the amount of $2,863,259 and replace roofs in the amount of $1,011,774.

USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Position and the Statement of Activities (on pages 9 – 12). These provide

information about the activities of the District as a whole and present a long-term view of the District’s property and obligations and other financial matters. They reflect the flow of total economic resources in a manner

similar to the financial reports of a business enterprise. Fund financial statements (starting on page 13) report the District’s operations in more detail than the government-wide statements by providing information about the District’s most significant funds. For

governmental activities, these statements tell how services were financed in the short-term, as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. For proprietary activities, fund financial statements tell how services of the District were sold to external customers. The remaining statements, fiduciary statements, provide financial information about activities for which the District acts solely as a trustee. The notes to the financial statements (starting on page 24) provide narrative explanations or additional

data needed for full disclosure in the government-wide statements of the fund financial statements. The combining statements for nonmajor funds are presented immediately following the required supplementary information and contain even more information about the District’s individual funds. In addition to the basic financial statements and accompanying notes, this report also presents certain required

supplementary information that further explains and supports the information in the financial statements. The sections labeled TEA Required Schedules and Federal Awards Section contain data used by monitoring or

regulatory agencies for assurance that the District is using funds supplied in compliance with the terms of grants. Reporting the District as a Whole

The Statement of Net Position and the Statement of Activities

The analysis of the District’s overall financial condition and operations begins on page 9. Its primary

objective is to show the results of operations and whether the District is better off or worse off as a result of the year’s activities.

5

The Statement of Net Position includes all the District’s assets and liabilities while the Statement of Activities includes all the revenue and expenses generated by the District’s operations during the year. These apply the accrual basis of accounting, which is the same method used by most private sector

companies.

All of the current year’s revenue and expenses are taken into account regardless of when cash is received or paid. The District’s revenue is divided into those provided by outside parties who share the costs of some programs, such as tuition received from students and grants provided by the U. S. Department of Education to assist children with disabilities or from disadvantaged backgrounds (program revenue), and general revenue provided by the taxpayers or by TEA in equalization funding processes (general revenue). All of the District’s assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years.

These two statements report the District’s net position and changes in them. The District’s net position

(the difference between assets and liabilities) provide one measure of the District’s financial health or financial position. Over time, increases or decreases in the District’s net position are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the District, however, you should consider nonfinancial factors as well, such as changes in the District’s average daily

attendance or its property tax base and the condition of the District’s facilities.

In the Statement of Net Position and the Statement of Activities, the District has two kinds of activities: Governmental Activities – Most of the District’s basic services are reported here,

including instruction, counseling, co-curricular activities, food services, transportation, maintenance, community services and general administration. Property taxes, tuition,

fees, and state and federal grants finance most of these activities.

Business-type Activities – The District’s activities for which outside users are charged a fee roughly equal to the cost of providing the goods or services to those activities.

Reporting the District’s Most Significant Funds

Fund Financial Statements

The Fund financial statements begin on page 13 and provide detailed information about the most significant funds – not the District as a whole. Laws and contracts require the District to establish some funds, such as grants received under ESEA Title I from the U. S. Department of Education. The District’s administration establishes many other funds to help it control and manage money for particular

purposes (like campus activities). The District’s two kinds of funds – governmental and proprietary – use different accounting approaches.

Governmental Funds – The District reports most of its basic services in governmental

funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and they report balances that are available for future spending. The governmental fund

statements provide a detailed short-term view of the District’s general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in reconciliation schedules following each of the governmental fund financial statements.

Proprietary Funds – Proprietary funds provide the same type of information as the

government-wide financial statements, only in more detail. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. As mentioned above in the government-wide definition, the District uses the business-type activities or Enterprise Funds to report activities for the District’s employee Pre-K program and the Panther Kids after- school care program.

6

The District as Trustee

Reporting the District’s Fiduciary Responsibilities

The District is the trustee, or fiduciary, for money raised by student activities. All of the District’s

fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position on pages 22 and 23. We exclude these resources from the District’s other financial statements because the District cannot use them to support its operations. The District is only responsible for ensuring that the assets reported in these funds are used for their intended purposes.

GOVERNMENT-WIDE FINANCIAL ANALYSIS

The following analysis focuses on the net position (Table l) and changes in net position (Table 2) of the District’s governmental and business-type activities. Net position of the District’s governmental activities increased from $14,925,748 to $20,725,143, mainly due to the implementation of GASB 75 as mentioned above. Unrestricted net position – the part of net

position that can be used to finance day-to-day operations without constraints established by debt covenants,

enabling legislation, or other legal requirements – were ($18,331,657) at August 31, 2019.

2019 2018 2019 2018 2019 2018

Current and other assets 38,049,015$ 38,228,607$ 402,467$ 357,069$ 38,451,482$ 38,585,676$

Capital assets 126,347,961 127,664,596 - - 126,347,961 127,664,596

Total assets 164,396,976 165,893,203 402,467 357,069 164,799,443 166,250,272

Total deferred outflows

of resources 19,354,961 9,332,632 - - 19,354,961 9,332,632

Other liabilities 5,280,673 4,839,804 - 1,664 5,280,673 4,841,468

Long-term liabilities 147,792,840 144,056,407 - - 147,792,840 144,056,407

Total liabilities 153,073,513 148,896,211 - 1,664 153,073,513 148,897,875

Total deferred inflows

of resources 9,953,281 11,403,876 - - 9,953,281 11,403,876

Net position:

Net investment in capital

assets, net of related debt 30,882,118 22,124,684 - - 30,882,118 22,124,684

Restricted 8,174,682 6,943,063 - - 8,174,682 6,943,063

Unrestricted 18,331,657)( 14,141,999)( 402,467 355,405 17,929,190)( 13,786,594)(

Total net position 20,725,143$ 14,925,748$ 402,467$ 355,405$ 21,127,610$ 15,281,153$

TABLE 1


Governmental Activities

NET POSITION

Business-type Activities Totals

7

2019 2018 2019 2018 2019 2018

REVENUES

Program revenues:

Charges for services 2,302,581$ 2,404,100$ 681,828$ 690,669$ 2,984,409$ 3,094,769$

Operating grants and contributions 12,729,687 2,695,581)( - - 12,729,687 2,695,581)(

General revenues:

Maintenance and operations taxes 54,211,621 50,605,540 - - 54,211,621 50,605,540

Debt service taxes 14,593,179 13,624,841 - - 14,593,179 13,624,841

State aid - formula grants 8,488,141 8,164,738 - - 8,488,141 8,164,738

Investment earnings 1,235,660 730,463 - - 1,235,660 730,463

Miscellaneous local and intermediate 244,643 351,460 - - 244,643 351,460

Transfers - 141,327 - 141,327)( - -

Total revenues 93,805,512 73,326,888 681,828 549,342 94,487,340 73,876,230

EXPENSES

Instruction 48,064,435 30,046,739 - - 48,064,435 30,046,739

Instructional resources and

media services 1,057,598 713,766 - - 1,057,598 713,766

Curriculum and staff development 1,295,879 842,894 - - 1,295,879 842,894

Instructional leadership 2,126,267 970,782 - - 2,126,267 970,782

School leadership 4,293,991 2,563,101 - - 4,293,991 2,563,101

Guidance, counseling and

evaluation services 2,604,158 1,629,342 - - 2,604,158 1,629,342

Social work services 109,206 43,265 - - 109,206 43,265

Data processing services 1,166,623 889,960 - - 1,166,623 889,960

Community services 203,696 182,625 - - 203,696 182,625

Health services 1,331,428 500,234 - - 1,331,428 500,234

Student (pupil) transportation 1,980,794 1,850,480 - - 1,980,794 1,850,480

Food services 4,001,482 2,707,543 - - 4,001,482 2,707,543

Co-curricular/extracurricular activities 3,184,435 3,416,845 - - 3,184,435 3,416,845

General administration 3,384,152 1,737,965 - - 3,384,152 1,737,965

Plant maintenance and operations 7,933,495 6,048,761 - - 7,933,495 6,048,761

Security and monitoring services 507,104 206,699 - - 507,104 206,699

Debt service - interest on long-term debt 4,118,558 4,393,229 - - 4,118,558 4,393,229

Debt service - bond issuance costs and fees 7,300 255,015 - - 7,300 255,015

PEP fund - - 634,766 581,779 634,766 581,779

Other governmental charges 635,516 688,628 - - 635,516 688,628

Total expenses 88,006,117 59,687,873 634,766 581,779 88,640,883 60,269,652

INCREASE IN NET POSITION 5,799,395 13,639,015 47,062 32,437)( 5,846,457 13,606,578

NET POSITION, BEGINNING 14,925,748 40,489,850 355,405 387,842 15,281,153 40,877,692

PRIOR PERIOD ADJUSTMENT - 39,203,117)( - - - 39,203,117)(

NET POSITION, ENDING 20,725,143$ 14,925,748$ 402,467$ 355,405$ 21,127,610$ 15,281,153$

Governmental Activities Business-type Activities

TABLE 2


CHANGES IN NET POSITION

Totals

8

THE DISTRICT’S FUNDS

As the District completed the year, its governmental funds (as presented in the balance sheet on page 13) reported a combined fund balance of $30,876,400, which is less than last year’s total of $31,825,243. The

District’s expenditures increased by $9.6 million.

Over the course of the year, the Board of Trustees amended the District’s budget several times. These amendments include amounts to reallocate funds from categories having available funds to categories where funds were more needed.

The District’s General Fund balance of $21.5 million reported on pages 13 and 16 differs from the

General Fund’s budgetary fund balance of $21.5 million. This is principally due to conservative budgeting principles. CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At the end of 2019, the District had approximately $126.3 million (net of accumulated depreciation)

invested in a broad range of capital assets, including instructional facilities and equipment, transportation facilities and equipment, athletic facilities, and administrative and maintenance buildings and equipment.

This year’s major additions included:

Land 2,863,259$

Buildings 1,457,963

Furniture and Equipment 80,341

Additional information about the District’s capital assets is presented in Note II B to the financial statements.

Debt

At year-end, the District had approximately $91.6 million in bonds and loans outstanding versus approximately $101.2 million last year. The District’s general obligation bond rating continues to carry the highest rating possible, a rating that has been assigned by national rating agencies. Additional information about the District’s long-term

liabilities is presented in Note II E to the financial statements.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The District’s elected and appointed officials considered many factors when setting the fiscal year

2020 budget and tax rates. The passage of House Bill 3 during the 2019 Legislative Session required the District to compress its FY 2020 M&O tax rate to $0.97 (from a rate of $1.04 in FY 19). The accompanying loss in tax revenue due to the tax rate compression is offset by an increase in overall State funding. The District

expects tax revenue to increase modestly for fiscal year 2020. Continued growth in the tax base is expected to be the driving force in increased collections. The District also expects expenditures to grow.

CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District’s finances and to show the District’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the District Administration office, at 13885 Woodway Drive, Woodway, Texas 76712.

BASIC FINANCIAL STATEMENTS


STATEMENT OF NET POSITION

AUGUST 31, 2019

PrimaryGovernment

1Data

Control GovernmentalCodes Activities

ASSETS1110 Cash and cash equivalents 14,462,085$ 1120 Current investments 21,062,111 1210 Current property taxes receivable 334,559 1220 Delinquent property taxes receivable 607,121 1230 Allowance for uncollectible taxes (credit) 301,637)( 1240 Due from other governments 1,796,522 1290 Other receivables (net) 7,143 1300 Inventories 81,111

Capital assets:1510 Land 11,013,386 1520 Buildings and improvements, net 111,147,420

1530 Furniture and equipment, net 4,187,155

1000 Total assets 164,396,976

DEFERRED OUTFLOWS OF RESOURCES1701 Deferred loss on bond refunding 3,627,105

1705 Deferred outflow related to pensions 11,796,433

1706 Deferred outflow related to other post-employment benefits 3,931,423

1700 Total deferred outflows of resources 19,354,961

LIABILITIES2110 Accounts payable 649,118 2140 Interest payable 283,384 2160 Accrued wages payable 4,283,431 2180 Due to other governments 59 2300 Unearned revenue 64,681

Noncurrent liabilities: 2501 Due within one year 7,675,000

2502 Due in more than one year 91,417,948

2540 Net pension liability 21,488,419

2545 Net other post-employment benefit liability 27,211,473

2000 Total liabilities 153,073,513

DEFERRED INFLOWS OF RESOURCES

2605 Deferred inflow related to pensions 1,348,358

Deferred inflow related to other post-employment benefits 8,604,923

2600 Total deferred inflows of resources 9,953,281

NET POSITION3200 Net investment in capital assets 30,882,118

Restricted for:3820 Federal and state programs 1,040,725 3850 Debt service 7,133,957

3900 Unrestricted 18,331,657)(

3000 Total net position 20,725,143$

The accompanying notes are an integral

part of this financial statement. 9

EXHIBIT A-1

2 3

Business-typeActivities Total

401,646$ 14,863,731$ - 21,062,111 - 334,559 - 607,121 - 301,637)( - 1,796,522 821 7,964

- 81,111

- 11,013,386 - 111,147,420

- 4,187,155

402,467 164,799,443

- 3,627,105

- 11,796,433 - 3,931,423

- 19,354,961

- 649,118 - 283,384 - 4,283,431 - 59 - 64,681

- 7,675,000

- 91,417,948

- 21,488,419

- 27,211,473

- 153,073,513

- 1,348,358 - 8,604,923

- 9,953,281

- 30,882,118

- 1,040,725 - 7,133,957

402,467 17,929,190)(

402,467$ 21,127,610$

Primary Government

10


STATEMENT OF ACTIVITIES

AUGUST 31, 2019

ProgramRevenues

1 3Data

Control ChargesCodes Functions/Programs Expenses for Services

Primary government: Governmental activities:

11 Instruction 48,064,435$ 181,790$ 12 Instructional resources and media services 1,057,598 - 13 Curriculum and staff development 1,295,879 - 21 Instructional leadership 2,126,267 - 23 School leadership 4,293,991 - 31 Guidance, counseling, and evaluation services 2,604,158 - 32 Social work services 109,206 - 33 Health services 1,331,428 - 34 Student transportation 1,980,794 - 35 Food service 4,001,482 1,626,348 36 Extracurricular activities 3,184,435 248,436 41 General administration 3,384,152 - 51 Facilities maintenance and operations 7,933,495 246,007 52 Security and monitoring services 507,104 - 53 Data processing services 1,166,623 - 61 Community services 203,696 - 72 Interest on long-term debt 4,118,558 - 73 Bond issuance costs and fees 7,300 -

99 Other governmental charges 635,516 -

TG Total governmental activities 88,006,117 2,302,581

Business-type activities:

04 Panther Kids 634,766 681,828

TB Total business-type activities 634,766 681,828

TP Total primary government 88,640,883$ 2,984,409$

General revenues: Taxes:

MT Property taxes, levied for general purposes DT Property taxes, levied for debt service GC Grants and contributions not restricted IE Investment earnings

MI Miscellaneous local and intermediate revenue

TR Total general revenues

CN Change in net position

NB Net position - beginning

NE Net position - ending



EXHIBIT B-1

ProgramRevenues

4 6 7 8OperatingGrants and Governmental Business-type

Contributions Activities Activities Total

6,461,859$ 41,420,786)$( -$ 41,420,786)$( 145,821 911,777)( - 911,777)( 145,283 1,150,596)( - 1,150,596)( 457,829 1,668,438)( - 1,668,438)( 407,273 3,886,718)( - 3,886,718)( 295,787 2,308,371)( - 2,308,371)( 36,790 72,416)( - 72,416)(

591,906 739,522)( - 739,522)( 116,049 1,864,745)( - 1,864,745)(

2,056,611 318,523)( - 318,523)( 986,506 1,949,493)( - 1,949,493)( 232,779 3,151,373)( - 3,151,373)( 375,386 7,312,102)( - 7,312,102)(

8,684 498,420)( - 498,420)( 67,003 1,099,620)( - 1,099,620)(

100,958 102,738)( - 102,738)( 243,163 3,875,395)( - 3,875,395)(

- 7,300)( - 7,300)(

- 635,516)( - 635,516)(

12,729,687 72,973,849)( - 72,973,849)(

- - 47,062 47,062

- - 47,062 47,062

12,729,687$ 72,973,849)( 47,062 72,926,787)(

54,211,621 - 54,211,621 14,593,179 - 14,593,179 8,488,141 - 8,488,141 1,235,660 - 1,235,660

244,643 - 244,643

78,773,244 - 78,773,244

5,799,395 47,062 5,846,457

14,925,748 355,405 15,281,153

20,725,143$ 402,467$ 21,127,610$

Primary Government

Changes in Net PositionNet (Expenses) Revenue and

12


BALANCE SHEET - GOVERNMENTAL FUNDS

AUGUST 31, 2019

10 50Data

Control DebtCodes General Service

ASSETS1110 Cash and cash equivalents 8,670,543$ 2,163,822$ 1120 Current investments 15,943,875 5,118,236 1210 Current property taxes receivable 263,592 70,967 1220 Delinquent property taxes receivable 480,602 126,519 1230 Allowance for uncollectible taxes 239,434)( 62,203)( 1240 Due from other governments 732,575 - 1260 Due from other funds 973,524 - 1290 Other receivables 7,143 -

1300 Inventories - -

1000 Total assets 26,832,420 7,417,341

LIABILITIES 2110 Accounts payable 552,998 - 2160 Accrued wages payable 4,237,793 - 2170 Due to other funds - - 2180 Due to other governments 59 -

2300 Unearned revenue 49,000 -

2000 Total liabilities 4,839,850 -

DEFERRED INFLOWS OF RESOURCES

2605 Unavailable revenue - property taxes 504,761 135,283

2600 Total deferred inflows of resources 504,761 135,283

FUND BALANCES3410 Nonspendable - inventories - -

Restricted for:3450 Federal and state programs - - 3480 Debt service - 7,282,058

Committed for:3510 Construction 330,500 - 3545 Other 381,648 -

Assigned for:

3600 Unassigned 20,775,661 -

3000 Total fund balances 21,487,809 7,282,058

4000 Total liabilities, deferred inflows of

resources and fund balances 26,832,420$ 7,417,341$



EXHIBIT C-1

410 98State Total

Instructional Other GovernmentalMaterials Governmental Funds

-$ 1,646,911$ 12,481,276$ - - 21,062,111 - - 334,559 - - 607,121 - - 301,637)(

782,586 281,361 1,796,522 - - 973,524 - - 7,143

- 81,111 81,111

782,586 2,009,383 37,041,730

- 96,120 649,118 - 45,638 4,283,431

782,586 190,938 973,524 - - 59

- 15,681 64,681

782,586 348,377 5,970,813

- - 640,044

- - 640,044

- 81,111 81,111

- 1,040,725 1,040,725 - - 7,282,058

- - 330,500 - 539,751 921,399

- 581)( 20,775,080

- 1,661,006 30,430,873

782,586$ 2,009,383$ 37,041,730$

14


RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET POSITION

FOR THE YEAR ENDED AUGUST 31, 2019

EXHIBIT C-2

Total Fund Balances - Governmental Funds 30,430,873$

1 The district uses internal service funds to charge the costs of certain

activities, such as computer operations, to appropriate functions in other

funds. The assets and liabilities of the internal service funds are included in

governmental activities in the statement of net assets. The net effect of this

consolidation is to increase net assets. 1,980,809

2 Capital assets used in governmental activities are not financial resources and

therefore are not reported in governmental funds. 126,347,961

3 Uncollected property taxes are reported as unavailable resources in the

governmental funds balance sheet, but are not recognized as a revenue in

the statement of activities. 640,044

4 Long-term liabilities, including bonds and tax notes payable, are not due and

payable in the current period and therefore are not reported in the funds.

Also, the loss on refunding of bonds and the premium on issuance of bonds

payable are not reported in the funds. 95,465,843)(

5 Interest payable is not due and payable in the current period and, therefore,

is not reported as a liability in the government funds. 283,384)(

6 Included in the items related to debt is the recognition of the District's

proportionate share of the net pension liability required by GASB 68. The net

position related to pensions included a deferred resource outflow in the

amount of $11,796,433, a deferred resource inflow in the amount of

$1,348358, and a net pension liability in the amount of $21,488,419. 11,040,344)(

19 Included in the items related to debt is the recognition of the District's

proportionate share of the net other post-employment benefit (OPEB) liability

required by GASB 75. The net position related to the OPEB included a

deferred resource outflow in the amount of $3,931,423, a deferred resource

inflow in the amount of $8,604,923, and a net OPEB liability in the amount of

$27,211,473. 31,884,973)(

Change in net position of governmental activities 20,725,143$




STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS


10 50Data

Control DebtCodes General Service

REVENUES5700 Local and intermediate sources 56,013,153$ 14,917,767$ 5800 State program revenues 11,517,912 243,163

5900 Federal program revenues 819,413 -

5020 Total revenues 68,350,478 15,160,930

EXPENDITURES Current:

0011 Instruction 39,752,535 - 0012 Instructional resources and media services 831,717 - 0013 Curriculum and staff development 1,137,947 - 0021 Instructional leadership 1,568,167 - 0023 School leadership 3,889,361 - 0031 Guidance, counseling, and evaluation services 2,311,715 - 0032 Social work services 91,317 - 0033 Health services 719,173 - 0034 Student transportation 2,049,571 - 0035 Food service - - 0036 Extracurricular activities 2,080,711 - 0041 General administration 2,644,407 - 0051 Facilities maintenance and operations 6,685,083 - 0052 Security and monitoring services 502,930 - 0053 Data processing services 1,793,049 - 0061 Community services 98,433 -

Debt service:0071 Principal on long-term debt - 10,305,000 0072 Interest on long-term debt - 3,892,096 0073 Bond issuance costs and fees - 7,300

Capital outlay:0081 Capital outlay 4,102,691 -

Intergovernmental:

0099 Other intergovernmental charges 635,516 -

6030 Total expenditures 70,894,323 14,204,396

1100 EXCESS (DEFICIENCY) OF REVENUES

OVER (UNDER) EXPENDITURES 2,543,845)( 956,534

OTHER FINANCING SOURCES (USES)7915 Transfers in 494 -

8911 Transfers out - -

7080 Total other financing sources (uses) 494 -

NET CHANGE IN FUND BALANCES 2,543,351)( 956,534

0100 FUND BALANCES, BEGINNING 24,031,160 6,325,524

3000 FUND BALANCES, ENDING 21,487,809$ 7,282,058$



EXHIBIT C-3

410 98State Total

Instructional Other GovernmentalMaterials Governmental Funds

-$ 3,166,728$ 74,097,648$ 1,300,653 76,584 13,138,312

- 3,619,982 4,439,395

1,300,653 6,863,294 91,675,355

1,300,653 1,764,900 42,818,088 - 79,570 911,287 - 59,847 1,197,794 - 322,807 1,890,974 - 55,118 3,944,479 - 94,933 2,406,648 - - 91,317 - 32,757 751,930 - - 2,049,571 - 3,132,465 3,132,465 - 905,912 2,986,623 - - 2,644,407 - 14,929 6,700,012 - 4,174 507,104 - - 1,793,049 - 100,513 198,946

- - 10,305,000 - - 3,892,096 - - 7,300

- 102,428 4,205,119

- - 635,516

1,300,653 6,670,353 93,069,725

- 192,941 1,394,370)(

- - 494

- 494)( 494)(

- 494)( -

- 192,447 1,394,370)(

- 1,468,559 31,825,243

-$ 1,661,006$ 30,430,873$

17


RECONCILIATION OF THE STATEMENT OF REVENUES,

EXPENDITURES AND CHANGES IN FUND BALANCES OF

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

EXHIBIT C-4

Net change in fund balances - total governmental funds 1,394,370)$(

Governmental funds report capital outlays as expenditures. However, in

the statement of activities, the cost of those assets is allocated over their

estimated useful lives as depreciation expense. This is the amount by

which depreciation exceeded capital outlays in the current period. 1,264,811)(

Property tax revenues that do not provide current financial resources are

not reported as revenues in the funds. 75,300

The issuance of long-term debt provides current financial resources to

governmental funds, while the repayment of the principal long-term debt

consume these current financial resources of governmental funds. Neither

transaction, however, has any effect on net position. Also, governmental

funds report the effect of premiums when debt is first issued, whereas

these amounts are deferred and amortized in the statement of activities. 10,305,000

Some expenses reported in the statement of activities do not require the

use of current financial resources and therefore are not reported as

expenditures in governmental funds. 278,286)(

Internal Service Funds are used by management to charge the costs of

certain activities, such as computer operations, to individual funds. The net

revenue (expense) of the Internal Service Funds is reported with

governmental activities. 694,152

GASB 68 Required that certain plan expenditures be de-expended and

recorded as deferred resource outflows. These contributions made after the

measurement date of the plan caused the change in ending net position to

increase by $1,364,710. Contributions made before the measurement date

and during the previous fiscal year were expended and recorded as a

reduction in net pension liability. This caused a decrease in net position

totaling $1,291,719. Finally, the proportionate share of pension expense on

the plans as a whole had to be recorded. The net pension expense

decreased the change in net position by $1,907,079. 1,834,088)(

GASB 75 Required that certain plan expenditures be de-expended and

recorded as deferred resource outflows. These contributions made after the

measurement date of the plan caused the change in ending net position to

increase by $339,121. Contributions made before the measurement date

and during the previous fiscal year were expended and recorded as a

reduction in net OPEB liability. This caused a decrease in net position

totaling $326,999. Finally, the proportionate share of OPEB expense on the

plans as a whole had to be recorded. The net OPEB expense increased the

change in net position by $515,624. 503,502)(

Change in net position of governmental activities 5,799,395$

Amounts reported for governmental activities in the statement of activities




STATEMENT OF NET POSITION

PROPRIETARY FUNDS

AUGUST 31, 2019

EXHIBIT D-1

Business-type Governmental Activities Activities

Total InternalEnterprise Service

Funds FundsASSETS Current assets: Cash and cash equivalents 401,646$ 1,980,809$

Receivables, net 821 -

Total assets 402,467 1,980,809

LIABILITIES - -

NET POSITION

Unrestricted 402,467 1,980,809

Total net position 402,467$ 1,980,809$




STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET POSITION

PROPRIETARY FUNDS


EXHIBIT D-2

Business-type GovernmentalActivities Activities


Funds Funds

OPERATING REVENUES

Local and intermediate sources 681,828$ 808,869$

Total operating revenues 681,828 808,869

OPERATING EXPENSES Payroll costs 536,853 - Professional and contracted services - 50,780 Supplies and materials 29,176 63,937

Other operating costs 68,737 -

Total operating expenses 634,766 114,717

NET INCOME 47,062 694,152

NET POSITION, BEGINNING 355,405 1,286,657

NET POSITION, ENDING 402,467$ 1,980,809$




STATEMENT OF CASH FLOWS

PROPRIETARY FUNDS


EXHIBIT D-3

Business-type GovernmentalActivities Activities


Funds Funds

CASH FLOWS FROM OPERATING ACTIVITIES Cash received from user charges 682,344$ -$ Cash received from interfund charges for computer operations - 808,869 Cash payments to employees for services 536,853)( - Cash payments for suppliers 99,577)( 64,242)(

Cash payments for other operating expenses - 50,780)(

Net cash provided by operating activities 45,914 693,847

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45,914 693,847

CASH, BEGINNING 355,732 1,286,962

CASH, ENDING 401,646 1,980,809

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income 47,062 694,152

Effect of increases and decreases in current

assets and liabilities:

(Increase) decrease in accounts receivable 516 -

Increase (decrease) in accounts payable 1,664)( 305)(

Net cash provided by operating activities 45,914$ 693,847$




STATEMENT OF FIDUCIARY NET POSITION

FIDUCIARY FUNDS

AUGUST 31, 2019

EXHIBIT E-1

PrivatePurpose AgencyTrusts Funds

ASSETS

Cash and cash equivalents 53,076$ 94,469$

Total assets 53,076 94,469

LIABILITIES Due to student groups - 92,979

Accounts payable - 1,490

Total liabilities - 94,469$

NET POSITION

Unrestricted net position 53,076

Total net position 53,076$




STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

FIDUCIARY FUNDS


EXHIBIT E-2

PrivatePurposeTrusts

ADDITIONS

Local and intermediate sources 3,523$

Total additions 3,523

DEDUCTIONS

Other operating costs 4,250

Total deductions 4,250

CHANGE IN NET POSITION 727)(

NET POSITION, BEGINNING 53,803

NET POSITION, ENDING 53,076$



24


NOTES TO THE FINANCIAL STATEMENTS

AUGUST 31, 2019

I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Midway Independent School District (the “District”) is a public educational agency operating under the applicable laws and regulations of the State of Texas. It is governed by a seven-member Board of Trustees (the “Board”) elected by registered voters of the District. The District prepares its basic

financial statements in conformity with generally accepted accounting principles and it complies with the requirements of the appropriate version of Texas Education Agency’s Financial Accountability System Resource Guide (the “Resource Guide”) and the requirements of contracts and grants of agencies from which it receives funds. A. Reporting Entity

The Board of Trustees (the “Board”) is elected by the public and it has the authority to make decisions, appoint administrators and managers, and significantly influence operations. It also has the primary accountability for fiscal matters. Therefore, the District is a financial reporting entity as defined by the Governmental Accounting Standards Board. There are no component units included within the reporting entity.

B. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the District. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes, state foundation funds, grants and other intergovernmental revenue, are reported separately from business-type activities, which rely to a

significant extent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by

a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. The fund financial statements provide reports on the financial condition and results of operations for three fund categories - governmental, proprietary, and fiduciary. Since the resources in the fiduciary funds cannot be used for District operations, they are not included in the government-

wide statements. The District considers some governmental and enterprise funds major and reports their financial condition and results of operations in a separate column. Proprietary funds distinguish operating revenue and expenses from nonoperating items. Operating revenue and expenses result from providing services and producing and delivering goods in

connection with a proprietary fund’s principal ongoing operations. All other revenue and expenses are nonoperating.

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.

Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

25

Governmental fund financial statements use the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets, current liabilities and fund balances are included on the balance sheet. Operating statements of

these funds present net increases and decreases in current assets (i.e., revenue and other financing sources and expenditures and other financing uses).

The modified accrual basis of accounting recognizes revenue in the accounting period in which it becomes both measurable and available, and it recognizes expenditures in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest and principal on long-term debt, which is recognized when due. The expenditures related to certain compensated absences and claims and judgments are recognized when the obligations are expected to be liquidated with expendable available financial resources. The District considers all

revenue available if it is collectible within 60 days after year-end. Revenue from local sources consists primarily of property taxes. Property tax revenue and revenue received from the state are recognized under the susceptible-to-accrual concept. Miscellaneous revenue is recorded as revenue when received in cash because it is generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable

and available.

Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant. Accordingly, when such funds are received, they are recorded as unearned revenue until related and authorized expenditures have been made. If balances have not been expended by the end of the project period, grantors sometimes require the District to refund all or part of the unused amount.

The Proprietary Fund Types are accounted for on a flow of economic resources measurement focus and utilize the accrual basis of accounting. This basis of accounting recognizes revenue in the accounting period in which it is earned and becomes measurable, and expenses in the accounting period in which they are incurred and become measurable. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless these pronouncements conflict or contradict GASB

pronouncements. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the Statement of Net Position. The fund equity is

segregated into three categories: net investment in capital assets, restricted net position, and unrestricted net position. Fiduciary funds are used to account for resources held for the benefit of parties outside the District.

This District’s private-purpose trust fund’s activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. The District uses an agency fund to account for assets held for student groups. This fund is custodial in nature and does not involve measurement of results of operations. Accordingly, it presents only a statement of fiduciary net position and does not present a statement of changes in fiduciary net position. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the District’s own programs. The private-purpose trust fund is presented on

an economic resources measurement focus and the accrual basis of accounting, similar to the government-wide financial statements. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. The District reports the following major governmental funds:

General Fund – The General Fund is the government’s primary operating fund. It

accounts for all financial resources of the general government, except those required to be accounted for in another fund. Debt Service Fund – The Debt Service Fund accounts for the accumulation of resources that are restricted, committed, or assigned for the payment of principal and interest on long-term general obligations of governmental funds.

State Instructional Materials Fund – The State Instructional Materials Fund accounts for funds awarded to the District under the instructional materials allotment.

26

Additionally, the District reports the following fund types: Governmental Funds:

Special Revenue Funds – The District accounts for resources restricted to, or

designated for, specific purposes by the District or a grantor in a Special Revenue Fund. Most federal and some state financial assistance is accounted for in a Special Revenue Fund.

Proprietary Funds:

Enterprise Funds – The District’s activities for which outside users are charged a

fee roughly equal to the cost of providing the goods or services of those activities are accounted for in an Enterprise Fund. The District’s non-major Enterprise Fund is the Panther Kids Fund. Internal Service Funds – The District accounts for information technology services provided to other departments on a cost reimbursement basis.

Fiduciary Funds:

Private Purpose Trust Funds – The District accounts for donations for which the donor has stipulated that the principal be expended for a specific purpose. The District’s Private Purpose Trust Fund is the Scholarship Fund.

Agency Funds – These custodial funds are used to account for activities of student groups and other organizational activities requiring clearing accounts. Financial resources for the Agency Funds are recorded as assets and liabilities; therefore, these funds do not include revenue and expenditures and have no fund equity. If the student groups declare any unused resources surplus, they are transferred to the General Fund with a recommendation to the Board for an appropriate utilization through a budgeted program.

D. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund

Balance

1. Deposits and Investments

The District’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments for the District are reported at fair value.

2. Receivables and Payables

Activity between funds that are representative of lending/borrowing arrangements outstanding

at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as

“internal balances.”

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. Property taxes are levied as of October 1 on property values assessed as of the prior January 1 for all real and business personal property located in the District in conformity with Subtitle

E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1 of the following year in which imposed. On January 31 of each year, a tax lien attaches to property to secure payment of all taxes, penalties, and interest ultimately imposed.

27

Tax collections are prorated between the General Fund and Debt Service Fund based on the tax rate approved by the Board. For the year ended August 31, 2019, the rates were $1.04 and $0.28, respectively, per $100 of assessed value.

Delinquent taxes are prorated between maintenance and debt service based on rates adopted

for the year of the levy. Allowances for uncollectible tax receivables within the General and Debt Service Funds are based on historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the District is prohibited from writing off real property taxes without specific statutory authority from the Texas Legislature.

3. Inventory

The consumption method is used to account for inventories of food products, school supplies and athletic equipment. Under this method, these items are carried in an inventory account of the respective fund at cost, using the first-in, first-out method of accounting and are subsequently charged to expenditures when consumed. In the Food Service Fund, reported inventories are offset by a non-spendable fund balance amount indicating that they are

unavailable as current expendable financial resources. As of August 31, 2019, inventory

reported in the National Breakfast and Lunch Program Fund was $81,111. 4. Capital Assets

Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the governmental or business-type activities columns in the financial statements.

Capital assets are defined by the District as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value, which is the price that would be paid to acquire an asset with equivalent service potential at the acquisition date. The costs of normal maintenance and repairs that do not add to the value of the asset or

materially extend assets lives are not capitalized.

Buildings, furniture and equipment of the District are depreciated using the straight-line method over the following estimated useful lives:

Assets Years

Buildings and improvements 39

Vehicles 10

Furniture and equipment 3-7

5. Long-term Obligations

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental activities Statement of Net Position. Bond

premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or

discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. The face amount of debt issued is reported as other

financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses.

28

6. Compensated Absences

Vacations are to be taken within the same year they are earned, and any unused days at the

end of the year are forfeited. Therefore, no liability has been accrued in the accompanying basic financial statements. Employees of the District are entitled to sick leave based on

category/class of employment. Sick leave is allowed to be accumulated but does not vest. Therefore, a liability for unused sick leave has not been recorded in the accompanying basic financial statements.

7. Deferred outflows/inflows of resources

In addition to assets, the statement of financial position will sometimes report a separate

section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has two items that qualify for reporting in this category. They are a deferred charge on refunding and deferred outflow related to TRS reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the

carrying value of refunded debt and its reacquisition price. This amount is deferred and

amortized over the shorter of the life of the refunded or refunding debt. The item related to TRS represents the District’s share of the unrecognized plan deferred outflow of resources which TRS uses in calculating the ending net pension and OPEB liabilities. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred

inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District has two types of inflows. One arises only under a modified accrual basis of accounting that qualifies for reporting in this category. The governmental funds report unavailable revenues from one source: property taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Additionally, the District also recognizes their share of the unrecognized TRS plan deferred inflows of resources which TRS

uses in calculating the ending net pension and OPEB liabilities. These amounts are only reported in the government wide financial statements.

8. Pensions The fiduciary net position of the Teacher Retirement System of Texas (TRS) has been

determined using the flow of economic resources measurement focus and full accrual basis of accounting. This includes for purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, pension expense, and information about assets, liabilities and additions to/deductions from TRS’s fiduciary net position. Benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

9. Other Post-Employment Benefits The fiduciary net position of the Teacher Retirement System of Texas (TRS) TRS Care Plan has been determined using the flow of economic resources measurement focus and full accrual basis of accounting. This includes for purposes of measuring the net OPEB liability, deferred

outflows of resources and deferred inflows of resources related to other post-employment benefits, OPEB expense, and information about assets, liabilities and additions to/deductions

from TRS Care’s fiduciary net position. Benefit payments are recognized when due and payable in accordance with the benefit terms. There are no investments as this is a pay-as you-go plan and all cash is held in a cash account.

29

10. Fund Balance Classification

The governmental fund financial statements present fund balances based on classifications

that comprise a hierarchy that is based primarily on the extent to which the District is bound to honor constraints on the specific purposes for which amounts in the respective

governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows:

• Nonspendable: This classification includes amounts that cannot be spent because they are

either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. Nonspendable items are not expected to be converted to cash or are not expected to be converted to cash within the next year.

• Restricted: This classification includes amounts for which constraints have been placed on

the use of the resources either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.

• Committed: This classification includes amounts that can be used only for specific

purposes pursuant to constraints imposed by board resolution of the School Board, the District’s highest level of decision-making authority. These amounts cannot be used for any other purpose unless the School Board removes or changes the specified use by taking the same type of action that was employed when the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources have been specifically committed for use in satisfying those contractual

requirements.

• Assigned: This classification includes amounts that are constrained by the District’s intent to be used for a specific purpose but are neither restricted nor committed. This intent can be expressed by the School Board or Superintendent.

• Unassigned: This classification includes the residual fund balance for the General Fund.

The unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of assigned fund balance

amounts.

When expenditures are incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When

expenditures are incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds.

The Board has established a policy of maintaining a minimum fund balance of 30% of the budget adopted in the following year.

11. Net Position

Net position represents the difference between assets, deferred outflow (inflow) of resources and liabilities. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition,

construction or improvements of those assets, and adding back unspent proceeds. Net position is reported as restricted when there are limitations imposed on its use either through

the enabling legislations adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments.

Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-

wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s policy to consider restricted net position to have been depleted before unrestricted net position is applied.

30

12. Estimates

The preparation of financial statements in conformity with accounting principles generally

accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results

could differ from those estimates. The amount of state foundation revenue and recapture cost for a year can and does vary until the time when final values for each of the factors in the formula become available. Availability can be as late as midway into the next fiscal year. It is at least reasonably possible that the foundation revenue estimates as of August 31, 2019, will change.

13. Data Control Codes

The Data Control Codes refer to the account code structure prescribed by TEA in the Financial Accountability System Resource Guide. Texas Education Agency requires school districts to display these codes in the financial statements filed with the Agency in order to ensure accuracy in building a statewide database for policy development and funding plans.

II. DETAILED NOTES ON ALL FUNDS

A. Deposits and Investments

Midway Independent School District’s investment policies and types of investments are governed

by the Public Funds Investment Act (“PFIA”). The act authorizes the District to invest in obligations of the U.S. Treasury or the State of Texas, certain U.S. agencies, certificates of deposit, money market savings accounts, certain municipal securities, repurchase agreements, common trust funds and investment pools. The District’s management believes that it complied with the requirements of the PFIA and the District’s investment policies. The District’s temporary investments are held with Lone Star and MBIA Texas Class Investment

Pools. Public funds investment pools in Texas (“Pools”) are established under the authority of the Interlocal Cooperation Act, Chapter 79 of the Texas Government Code, and are subject to the

provisions of the Public Funds Investment Act (the “Act”), Chapter 2256 of the Texas Government Code. In addition to other provisions of the Act designed to promote liquidity and safety of principal, the Act requires Pools to: 1) have an advisory board composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to

advise the pool; 2) maintain a continuous rating of no lower than AAA or AAA-m or an equivalent rating by at least one nationally recognized rating service; and 3) maintain the market value of its underlying investment portfolio within one half of one percent of the value of its shares. The pools are valued and reported at amortized cost. Custodial Credit Risk – Deposits

Custodial credit risk is the risk that in the event of a bank failure, the government’s deposits may not be returned to it. The District's funds are required to be deposited and invested under the terms of a depository contract. The depository bank deposits for safekeeping and trust with the District's agent bank approved pledged securities in an amount sufficient to protect District funds on a day-to-day basis during the period of the contract. The pledge of approved securities is

waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") Insurance. At August 31, 2019, the District’s deposits were covered by FDIC

insurance or collateralized with securities held by the District’s agent in the District’s name. Credit Risk – Investments The District policy of managing credit risk is to diversify the investment portfolio in terms of investment instruments, maturity scheduling and financial institutions.

31

Interest Rate Risk – Investments The District manages its interest rate risk by diversifying the investment portfolio’s investment

types and maturity scheduling. The District’s investments consisted of the following at August 31, 2019.

Reported Standar Weighted Average

Investment Type Value & Poor's Maturity (Days)

Lone Star 11,565,728 AAAm 44

11,565,728$

These public funds investment pools are reported with cash and cash equivalents in the financial statements. Current Investments reported in the financial statements consist of certificates of deposits that have maturities ranging from three to twelve months.

B. Capital Assets

Capital asset activity for the year ended August 31, 2019, was as follows:

Beginning Ending

Balance Balance

08/31/18 Increases Decreases 8/31/19

Governmental activities:

Capital assets, not being depreciated:

Land 8,150,127$ 2,863,259$ -$ 11,013,386$

Construction in progress 41,954 - 41,954)( -

Total capital assets,

not being depreciated 8,192,081 2,863,259 41,954)( 11,013,386

Capital assets, being depreciated:

Buildings 182,144,487 80,341 - 182,224,828

Furniture and equipment 12,954,771 1,457,963 680,966)( 13,731,768


being depreciated 195,099,258 1,538,304 680,966)( 195,956,596

Less accumulated depreciation for:

Buildings 66,322,328)( 4,755,080)( - 71,077,408)(

Furniture and equipment 9,304,415)( 911,294)( 671,096 9,544,613)(

Total accumulated depreciation75,626,743)( 5,666,374)( 671,096 80,622,021)(


being depreciated, net 119,472,515 4,128,070)( 9,870)( 115,334,575

Governmental activities

capital assets, net 127,664,596$ 1,264,811)$( 51,824)$( 126,347,961$

32

Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental activities:

Instruction 3,099,789$

Instructional resources and media services

Curriculum development and instructional 93,013

staff development 19,461

Instructional leadership 83,138

School leadership 55,658

Guidance, counseling and evaluation services 21,023

Health services 11,674

Student (pupil) transportation 532,731

Food services 189,988

Extracurricular activities 786,954

General administration 91,657

Plant maintenance and operations 582,465

Data processing services 98,823

Total depreciation expense - governmental activities 5,666,374$

C. Interfund Receivables, Payables and Transfers The composition of interfund balances as of August 31, 2019, is as follows:

The outstanding balances between funds result mainly from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.

D. Unearned Revenue

Governmental funds report unearned revenue in connection with receivables for revenue that is

not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unearned revenue reported in the governmental funds were as follows:

Unearned

Grant revenue (General Fund) 49,000$

Grant revenue (Nonmajor Governmental) 15,681

Total unearned revenue 64,681$

E. Deferred Outflows and Inflows of Resources

At August 31, 2019, the District reported deferred inflows for the following:

General Debt

Fund Service Fund

Unavailable - property taxes 504,761$ 135,283$

Totals 504,761$ 135,283$

Due to Due from Amount

General fund Nonmajor governmental 190,938$

General fund State Instructional Materials 782,586

973,524$

33

F. Long-term Debt

The following is a summary of changes in governmental long-term debt:

Amounts Amounts

Outstanding Interest Retired / Outstanding Due Within

08/31/18 Additions Accretion Reductions 08/31/19 One Year

General obligation bonds 101,193,407$ -$ 676,727$ 10,305,000$ 91,565,134$ 7,675,000$

Deferred amounts:

Premium on issuance

of bonds 8,445,558 - - 917,744 7,527,814 -

Total 109,638,965$ -$ 676,727$ 11,222,744$ 99,092,948$ 7,675,000$

The District’s outstanding bonds payable contain a provision that in an event of default, outstanding amounts will be paid from the corpus of the Texas Permanent School Fund. The District’s outstanding tax notes contain a provision that in an event of default, outstanding

amounts become immediately due.

Bonds Payable A summary of changes in general obligation bonds payable for the year ended August 31, 2019, is as follows:

Interest Amounts Amounts Amounts

Rate Original Outstanding Interest Outstanding

Description Payable Issue 08/31/18 Additions Accretion Retired 08/31/19

Bonded indebtedness:

2000 Unlimited 4.7% -

Bldg & Refunding 6.25% 50,720,310$ 10,383,407$ -$ 676,727$ 5,705,000$ 5,355,134$

2008A Variable

Unlimited Bldg Variable 25,000,000 21,700,000 - - 3,025,000 18,675,000

2013 Unlimited 3.0% -

Tax School Bldg 5% 32,995,000 20,035,000 - - 730,000 19,305,000

2015 Tax 2.0% -

Refunding 5% 37,285,000 37,015,000 - - 740,000 36,275,000

2017 Tax 4.0% -

Refunding 4.5% 8,390,000 8,270,000 - - - 8,270,000

2018 Tax 2.0% -

Refunding 4% 3,860,000 3,790,000 - - 105,000 3,685,000

Total bonded indebtedness 101,193,407$ -$ 676,727$ 10,305,000$ 91,565,134$

34

Presented below is a summary of general obligation bond requirements to maturity:

Year Ending Total

August 31, Principal Interest Requirements

2020 7,675,000$ 4,233,125$ 11,908,125$

2021 8,195,000 3,735,475 11,930,475

2022 8,580,000 3,347,475 11,927,475

2023 8,985,000 2,941,375 11,926,375

2024 9,415,000 2,515,775 11,930,775

2025-2029 39,300,000 6,255,315 45,555,315

2030-2033 9,765,000 1,122,263 10,887,263

Total 91,915,000 24,150,803$ 116,065,803$

Subtract:

Future Accreted Interest on CABs 349,866)(

Amount outstanding 91,565,134$

General Requirements

A portion of the bonds sold in Series 2000 and 2008 refunding bond issues were premium capital appreciation bonds. These obligations have par values of $13,089,962 and maturity values of $37,535,000. The interest on these obligations will be paid upon maturity in fiscal years ending August 31, 2013 through 2020.

During each year while bonds are outstanding, the District is required to levy and collect sufficient property taxes to provide for the payment of principal and interest as it becomes due. The revenue and bond payments are accounted for in the Debt Service Fund. Defeasance of Debt

As of August 31, 2019, outstanding balances of bond issues that have been refunded and

defeased in-substance by placing existing assets and the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments included the Unlimited Tax School Building and Refunding Bonds, Series 2008 and Series 2013 in the amount of $12,325,000.

III. OTHER INFORMATION

A. Defined Benefit Pension Plan

Plan Description. The District participates in a cost-sharing multiple-employer defined benefit pension that has a special funding situation. The plan is administered by the Teacher Retirement System of Texas (TRS) and is established and administered in accordance with the Texas Constitution, Article XVI, Section 67 and Texas Government Code, Title 8, Subtitle C. The pension

trust fund is a qualified pension trust under Section 401(a) of the Internal Revenue Code. The Texas Legislature establishes benefits and contribution rates within the guidelines of the Texas Constitution. The pension’s Board of Trustees does not have the authority to establish or amend benefit terms.

All employees of public, state-supported educational institutions in Texas who are employed for

one-half or more of the standard work load and who are not exempted from membership under Texas Government Code, Title 8, Section 822.002 are covered by the system.

35

Pension Plan Fiduciary Net Position. Detail information about the Teacher Retirement System’s fiduciary net position is available in a separately-issued Comprehensive Annual Financial Report that includes financial statements and required supplementary information. That report may be

obtained on the TRS website at www.trs.state.tx.us; by writing to TRS at 1000 Red River Street, Austin, TX, 78701-2698; or by calling (512) 542-6592.

Benefits Provided. TRS provides service and disability retirement, as well as death and survivor benefits, to eligible employees (and their beneficiaries) of public and higher education in Texas. The pension formula is calculated using 2.3 percent (multiplier) times the average of the five highest annual creditable salaries times years of credited service to arrive at the annual standard annuity except for members who are grandfathered, the three highest annual salaries are used. The normal service retirement is at age 65 with 5 years of credited service or when the sum of the

member’s age and years of credited service equals 80 or more years. Early retirement is at age 55 with 5 years of service credit or earlier than 55 with 30 years of service credit. There are additional provisions for early retirement if the sum of the member’s age and years of service credit total at least 80, but the member is less than age 60 or 62 depending on date of employment, or if the member was grandfathered in under a previous rule. There are no automatic post-employment benefit changes; including automatic COLAs. Ad hoc post-employment benefit changes, including

ad hoc COLAs can be granted by the Texas Legislature as noted in the Plan description in (A)

above. Contributions. Contribution requirements are established or amended pursuant to Article 16, section 67 of the Texas Constitution which requires the Texas legislature to establish a member contribution rate of not less than 6% of the member’s annual compensation and a state contribution rate of not less than 6% and not more than 10% of the aggregate annual

compensation paid to members of the system during the fiscal year. Texas Government Code section 821.006 prohibits benefit improvements, if as a result of the particular action, the time required to amortize TRS’ unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds 31 years, the period would be increased by such action. Employee contribution rates are set in state statute, Texas Government Code 825.402. Senate Bill

1458 of the 83rd Texas Legislature amended Texas Government Code 825.402 for member contributions and established employee contribution rates for fiscal years 2014 thru 2017. The

85th Texas Legislature, General Appropriations Act (GAA) affirmed that the employer contribution rates for fiscal years 2018 and 2019 would remain the same.

2018 2019

Member 7.7% 7.7%


Employers 6.8% 6.8%

Current Fiscal Year Employer Contributions 1,364,710$

Current Fiscal Year Member Contributions 3,682,524

2019 NECE On-behalf Contributions 2,303,845

Contribution Rates

Contributors to the plan include members, employers and the State of Texas as the only non-employer contributing entity. The State is the employer for senior colleges, medical schools and

state agencies including TRS. In each respective role, the State contributes to the plan in

accordance with state statutes and the General Appropriations Act (GAA).

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As the non-employer contributing entity for public education and junior colleges, the State of Texas contributes to the retirement system an amount equal to the current employer contribution rate times the aggregate annual compensation of all participating members of the pension trust fund

during that fiscal year reduced by the amounts described below which are paid by the employers. Employers (public school, junior college, other entities or the State of Texas as the employer for

senior universities and medical schools) are required to pay the employer contribution rate in the following instances:

• On the portion of the member's salary that exceeds the statutory minimum for members

entitled to the statutory minimum under Section 21.402 of the Texas Education Code.

• During a new member’s first 90 days of employment.

• When any part or all of an employee’s salary is paid by federal funding sources, a privately

sponsored source, from non-educational and general, or local funds.

• When the employing district is a public junior college or junior college district, the employer shall contribute to the retirement system an amount equal to 50% of the state

contribution rate for certain instructional or administrative employees; and 100% of the

state contribution rate for all other employees.

In addition to the employer contributions listed above, there are two additional surcharges an employer is subject to.

• When employing a retiree of the Teacher Retirement System the employer shall pay both

the member contribution and the state contribution as an employment after retirement surcharge.

• When a school district or charter school does not contribute to the Federal Old-Age, Survivors and Disability Insurance (OASDI) Program for certain employees, they must contribute 1.5% of the state contribution rate for certain instructional or administrative employees; and 100% of the state contribution rate for all other employees.

Actuarial Assumptions. The total pension liability in the August 31, 2017 actuarial valuation was rolled forward to August 31, 2018 was determined using the following actuarial assumptions:


Amortization Method Market Value

Single Discount Rate 6.91%

Long-term expected Investment Rate of Return 7.25%

Inflation 2.30%

Salary Increases Including Inflation 3.05% to 9.05%

Payroll Growth Rate 3.00%


The actuarial methods and assumptions are primarily based on a study of actual experience for the three-year period ending August 31, 2017 and adopted in July 2018.

37

Discount Rate. The single discount rate used to measure the total pension liability was 6.907%. The single discount rate was based on the expected rate of return on pension plan investments of 7.25 percent and a municipal bond rate of 3.69 percent. The projection of cash flows used to

determine the discount rate assumed that contributions from plan members and those of the contributing employers and the non-employer contributing entity are made at the statutorily

required rates. Based on those assumptions, the pension plan’s fiduciary net position was sufficient to finance the benefit payments until the year 2069. As a result, the long-term expected rate of return on pension plan investments was applied to projected benefit payments through the year 2069, and the municipal bond rate was applied to all benefit payments after that date. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimates ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the Systems target asset allocation as of August 31, 2018 are summarized below:

Expected

Long-Term Contribution to

Expected Long-Term

Target Geometric Real Portfolio

Asset Class Allocation1 Rate of Return2 Returns

Global Equity

U.S. 18.00% 5.70% 1.04%

Non-U.S. Developed 13.00% 6.90% 0.90%

Emerging Markets 9.00% 8.95% 0.80%

Directional Hedge Funds 4.00% 3.53% 0.14%

Private Equity 13.00% 10.18% 1.32%

Stable Value

U.S. Treasuries 11.00% 1.11% 0.12%

Absolute Return 0.00% 0.00% 0.00%

Stable Value Hedge Funds 4.00% 3.09% 0.12%

Cash 1.00% 0.30% 0.00%

Real Return

Global Inflation Linked Bonds 3.00% 0.70% 0.02%

Real Assets 14.00% 5.21% 0.73%

Energy and Natural Resources 5.00% 7.48% 0.37%

Commodities 0.00% 0.00% 0.00%

Risk Parity

Risk Parity 5.00% 3.70% 0.18%

Inflation Expectation 2.30%

Volatility Drag3 -0.79%

Discount Rate Sensitivity Analysis. The following schedule shows the impact of the Net Pension Liability if the discount rate used was 1% less than and 1% greater than the discount rate that was used (6.907%) in measuring the net pension liability.

1% Decrease in

Discount Rate

(5.907%)Discount Rate

(6.907%)

1% Increase in

Discount Rate

(7.907%)

District's proportionate

share of the net pension

liability: 32,431,177$ 21,488,419$ 12,629,608$

38

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. At August 31, 2019, the District reported a liability of $21,488,419 for its proportionate share of the TRS’s net pension liability. This liability reflects a

reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related State support, and the total

portion of the net pension liability that was associated with the District were as follows:

District's proportionate share of the collective net pension liability 21,488,419$

State's proportionate share that is associated with the District 37,666,295

Total 59,154,714$

The net pension liability was measured as of August 31, 2017 and rolled forward to August 31, 2018 and the total pension liability used to calculate the net pension liability was determined by an

actuarial valuation as of August 31, 2017 rolled forward to August 31, 2018. The employer’s proportion of the net pension liability was based on the employer’s contributions to the pension plan relative to the contributions of all employers to the plan for the period September 1, 2017 thru August 31, 2018.

At August 31, 2018 the employer’s proportion of the collective net pension liability was 0.0390397378% which was a decrease of 0.0013275328% from its proportion measured as of

August 31, 2017. Changes Since the Prior Actuarial Valuation. The following were changes to the actuarial assumptions or other inputs that affected measurement of the total pension liability since the prior measurement period.

• The Total Pension Liability as of August 31, 2018 was developed using a roll-forward method from the August 31, 2017 valuation.

• Demographic assumptions including post-retirement mortality, termination rates, and

rates of retirement were updated based on the experience study performed for TRS for the period ending August 31, 2017.

• Economic assumptions including rates of salary increase for individual participants was

updated based on the same experience study.

• The discount rate changed from 8.0 percent as of August 31, 2017 to 6.907 percent as of August 31, 2018.

• The long-term assumed rate of return changed from 8.0 percent to 7.25 percent.

• The change in the long-term assumed rate of return combined with the change in the

single discount rate was the primary reason for the increase in the Net Pension Liability.

There were no changes of benefit terms that affected measurement of the total pension liability during the measurement period.

For the year ended August 31, 2019, the District’s pension expense of $6,926,757 and revenue of $3,727,959 for support provided by the State.

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At August 31, 2019, the District’s proportionate share of the TRS’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred

Outflows of

Resources

Deferred

Inflows of

Resources

Differences between expected and actual economic experience 133,941$ 527,241$

Changes in actuarial assumptions 7,747,610 242,113

Difference between projected and actual investment earnings - 407,727

Changes in proportion and difference between the employer's

contributions and the proportionate share of contributions 2,550,172 171,277

Contributions paid to TRS subsequent to the measurement date 1,364,710 -

Total 11,796,433$ 1,348,358$

The net amounts of the employer’s balances of deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows:

Pension

Year ended August 31: Expense

2020 2,471,711$

2021 1,613,678

2022 1,361,047

2023 1,415,312

2024 1,326,760

Thereafter 894,857

B. Defined Other Post-Employment Benefit Plans

Plan Description. Midway Independent School District participates in the Texas Public School Retired Employees Group Insurance Program (TRS-Care). It is a multiple-employer, cost-sharing

defined Other Post-Employment Benefit (OPEB) plan that has a special funding situation. The plan is administered through a trust by the Teacher Retirement System of Texas (TRS) Board of Trustees. It is established and administered in accordance with the Texas Insurance Code, Chapter 1575.

OPEB Plan Fiduciary Net Position. Detail information about the TRS-Care’s fiduciary net

position is available in the separately-issued TRS Comprehensive Annual Financial Report that includes financial statements and required supplementary information. That report may be obtained on the TRS website at www.trs.state.tx.us; by writing to TRS at 1000 Red River Street, Austin, TX, 78701-2698; or by calling (512) 542-6592. Benefits Provided. TRS-Care provides a basic health insurance coverage (TRS-Care 1), at no cost to all retirees from public schools, charter schools, regional education service centers and other educational districts who are members of the TRS pension plan. Optional dependent

coverage is available for an additional fee. Eligible retirees and their dependents not enrolled in Medicare may pay premiums to participate in one of two optional insurance plans with more comprehensive benefits (TRS-Care 2 and TRS-Care 3). Eligible retirees and dependents enrolled in Medicare may elect to participate in one of the two Medicare health plans for an additional fee. To qualify for TRS-Care coverage, a retiree must have at least 10 years of service credit in the TRS pension system. The Board of Trustees is granted the

authority to establish basic and optional group insurance coverage for participants as well as to amend benefit terms as needed under Chapter 1575.052. There are no automatic post-employment benefit changes; including automatic COLAs.

40

The premium rates for the optional health insurance are based on years of service of the member. The schedule below shows the monthly rates for a retiree with and without Medicare coverage.

Medicare Non-Medicare

Retiree* 135$ 200$

Retiree and Spouse 529 689

Retiree* and Children 468 408

Retiree and Family 1,020 999

* or surviving spouse

January 1, 2018 - December 31, 2018

TRS-Care Monthly for Retireees

Contributions. Contribution rates for the TRS-Care plan are established in state statute by the Texas Legislature, and there is no continuing obligation to provide benefits beyond each fiscal year. The TRS-Care plan is currently funded on a pay-as-you-go basis and is subject to change based on available funding. Funding for TRS-Care is provided by retiree premium contributions and contributions from the state, active employees, and school districts based upon public school

district payroll. The TRS Board of trustees does not have the authority to set or amend

contribution rates. Texas Insurance Code, section 1575.202 establishes the state’s contribution rate which is 1.25% of the employee’s salary. Section 1575.203 establishes the active employee’s rate which is .75% of pay. Section 1575.204 establishes an employer contribution rate of not less than 0.25 percent or not more than 0.75 percent of the salary of each active employee of the public. The actual employer contribution rate is prescribed by the Legislature in the General Appropriations Act. The

following table shows contributions to the TRS-Care plan by type of contributor.

2018 2019

Active employee 0.65% 0.65%


Employers 0.75% 0.75%

Federal/Private Funding Remitted by Employers 1.25% 1.25%

Current fiscal year employer contributions 339,121$

Current fiscal year member contributions 359,691

2018 measurement year NECE on-behalf contributions 545,431

Contributions Rates

In addition to the employer contributions listed above, there is an additional surcharge all TRS employers are subject to (regardless of whether or not they participate in the TRS Care OPEB program). When employers hire a TRS retiree, they are required to pay to TRS Care, a monthly surcharge of $535 per retiree.

TRS-Care received supplemental appropriations from the State of Texas as the Non-Employer Contributing Entity in the amount of $182.6 million in fiscal year 2018. The 85th Texas Legislature, House Bill 30 provided an additional $212 million in one-time, supplemental funding for the FY 2018-2019 biennium to continue to support the program. This was also received in FY 2018 bringing the total appropriations received in fiscal year 2018 to $394.6 million.

41

Actuarial Assumptions. The total OPEB liability in the August 31, 2017 was rolled forward to August 31, 2018. The actuarial valuation determined using the following actuarial assumptions:

The following assumptions and other inputs used for members of TRS-Care are identical to the assumptions used in the August 31, 2017 TRS pension actuarial valuation that was rolled forward

to August 31, 2018:

Rates of Mortality General Inflation

Rates of Retirement Wage Inflation

Rates of Termination Expected Payroll Growth

Rates of Disability Incidence

Additional Actuarial Methods and Assumptions


Inflation 2.30%

Discount Rate 3.69%. Sourced from fixed income

municipal bonds with 20 years to

maturity that include only federal tax-

exempt municipal bonds as reported

in Fidelity Index's "20-Year Municipal

GO AA Index" as of August 31, 2018.

Aging Factors Based on plan specific experience

Expenses Third-party administrative expenses

related to the delivery of health care

benefits are included in the age-

adjusted claim costs

Payroll Growth Rate 3.00%

Projected Salary Increases 2.50% to 9.50%

Healthcare Trend Rates 4.50% to 8.50%

Election Rates Normal Retirement: 70%

participation prior to age 65 and 75%

participation after age 65

Ad hoc post-employment benefit changes None

Other Information. The total OPEB liability as of August 31, 2018 was developed using the roll forward method of the August 31, 2017 valuation. Adjustments were made for retirees that were known to have discontinued their health care coverage in fiscal year 2018. The health care trend rate assumption was updated to reflect the anticipated return of the Health Insurer Fee (HIF) in 2020. Demographic and economic assumptions were updated based on the experience study

performed for TRS for the period ending August 31, 2017. The discount rate changed from 3.42 percent as of August 31, 2017 to 3.69 percent, as of August 31, 2018. This change lowered the total OPEB liability $2.3 billion. Discount Rate. A single discount rate of 3.69% was used to measure the total OPEB liability. There was an increase of .27 percent in the discount rate since the previous year. Because the

plan is essentially a “pay-as-you-go” plan, the single discount rate is equal to the prevailing municipal bond rate. The projection of cash flows used to determine the discount rate assumed that contributions from active members and those of the contributing employers and the non-

employer contributing entity are made at the statutorily required rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to not be able to make all future benefit payments of current plan members. Therefore, the municipal bond rate was applied to all periods of projected benefit payments to determine the total OPEB liability.

42

Discount Rate Sensitivity Analysis. The following schedule shows the impact of the Net OPEB Liability if the discount rate used was 1% less than the discount rate that was used (3.69%) in measuring the Net OPEB Liability.

1% Decrease in 1% Increase in

Discount Rate Discount Rate Discount Rate

(2.69%) (3.69%) (4.69%)

Proportionate share of net

OPEB liability 32,391,002$ 27,211,473$ 23,114,132$

OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred

Inflows of Resources Related to OPEBs. At August 31, 2019, the District reported a liability of $27,211,473 for its proportionate share of the TRS’s Net OPEB Liability. This liability reflects a reduction for State OPEB support provided to the District. The amount recognized by the District as its proportionate share of the net OPEB liability, the related State support, and the total portion of the net OPEB liability that was associated with the District were as follows:

District's proportionate share of the collective net OPEB liability 27,211,473$

State's proportionate share that is associated with the District 39,533,897

Total 66,745,370$

The Net OPEB Liability was measured as of August 31, 2017 and rolled forward to August 31, 2018 and the Total OPEB Liability used to calculate the Net OPEB Liability was determined by an actuarial valuation as of that date. The employer’s proportion of the Net OPEB Liability was based on the employer’s contributions to OPEB relative to the contributions of all employers to the plan for the period September 1, 2017 thru August 31, 2018.

At August 31, 2018 the employer’s proportion of the collective Net OPEB Liability was 0.0390397378%, which was an increase of .0013275328% from its proportion measured as of August 31, 2017. Healthcare Cost Trend Sensitivity Analysis. The following schedule shows the impact of the Net OPEB Liability if a healthcare trend rate that is 1% less than and 1% greater than the

assumed 8.5% rate used.

1% Decrease in

Healthcare

Trend Rate

(7.5%)

Current Single

Healthcare

Trend Rate

(8.5%)

1% Increase in

Healthcare

Trend Rate

(9.5%)

Proportionate share of net

OPEB liability 22,599,571$ 27,211,473$ 33,285,447$

Changes Since the Prior Actuarial Valuation. The following were changes to the actuarial assumptions or other inputs that affected measurement of the total OPEB liability since the prior

measurement period: • Adjustments were made for retirees that were known to have discontinued their health

care coverage in fiscal year 2018. This change increased the total OPEB liability.

• The health care trend rate assumption was updated to reflect the anticipated return of the Health Insurer Fee (HIF) in 2020. This change increased the total OPEB liability.

• Demographic and economic assumptions were updated based on the experience study

performed for TRS for the period ending August 31, 2017. This changed increased the total OPEB liability.

• The discount rate changed from 3.42 percent as of August 31, 2017 to 3.69 percent as of

August 31, 2018. This change lowered the total OPEB liability $2.3 billion.

43

In this valuation the impact of the Cadillac Tax has been calculated as a portion of the trend assumption. Assumptions and methods used to determine the impact of the Cadillac Tax include:

• 2019 thresholds of $850/$2,292 were indexed annually by 2.50 percent.

• Premium data submitted was not adjusted for permissible exclusions to the Cadillac Tax.

• There were no special adjustments to the dollar limit other than those permissible for non-Medicare retirees over 55.

Results indicate that the value of the excise tax would be reasonably represented by a 25-basis point addition to the long-term trend rate assumption.

Change of Benefit Terms Since the Prior Measurement Date. The 85th Legislature, Regular Session, passed the following changes in House Bill 3976 which became effective on September 1, 2017:

• Created a high-deductible plan that provides a zero cost for generic prescriptions for

certain preventive drugs and provides a zero premium for disability retirees who retired as

a disability retiree on or before January 1, 2017 and are not eligible to enroll in Medicare. • Created a single Medicare Advantage plan and Medicare prescription drug plan and

Medicare prescription drug plan for all Medicare-eligible participants. • Allowed the system to provide other, appropriate health benefits plans to address the

needs of enrollees eligible for Medicare.

• Allowed eligible retirees and their eligible dependents to enroll in TRS-Care when the retiree reaches 65 years of age, rather than waiting on the next enrollment period.

• Eliminated free coverage under TRS-Care, except for certain disability retirees enrolled

during plan years 2018 through 2021, requiring members to contribute $200 per month toward their health insurance premiums.

For the year ended August 31, 2019, the District recognized OPEB expense of $2,280,629 and

revenue of $1,438,006 for support provided by the State. At August 31, 2019, the District reported its proportionate share of the TRS’s deferred outflows of resources and deferred inflows of resources related to other post-employment benefits from the following sources:

Deferred Deferred

Outflows of Inflows of

Resources Resources

Differences between expected and actual actuarial experiences 1,444,012$ 429,437$

Changes in actuarial assumptions 454,086 8,175,486

Differences between projected and actual investment earnings 4,759 -

Changes in proportion and difference between the employer's

contributions and the proportionate share of contributions 1,689,445 -

Contributions paid to OPEB subsequent to the measurement date 339,121 -

Total as of fiscal year-end 3,931,423$ 8,604,923$

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The net amounts of the employer’s balances of deferred outflows and inflows of resources related to OPEB will be recognized in OPEB expense as follows:

For the Year OPEB

Ended August 31, Expense

2020 860,812)$(

2021 860,812)(

2022 860,812)(

2023 861,712)(

2024 862,227)(

Thereafter 706,246)(

C. Health Care Coverage

During the period ended August 31, 2019, employees of the District were covered by a state-wide

health care plan, TRS Active Care. The District’s participation in this plan is renewable annually. The District paid into the Plan $325 per month per employee. Employees, at their option, pay premiums for any coverage above these amounts as well as for dependent coverage.

The Teachers Retirement System (TRS) manages TRS Active Care. The medical plan is administered by Blue Cross and Blue Shield of Texas, FIRSTCARE and Scott and White HMO.

Medco Health administers the prescription drug plan. The latest financial information on the state-wide plan may be obtained by writing to the TRS Communications Department, 1000 Red River Street, Austin, Texas 78701, by calling the TRS Communications Department at 1-800-223-8778, or by downloading the report from the TRS Internet website, www.trs.state.tx.us, under the TRS Publications heading.

D. Medicare Part D – On-behalf Payments

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which was effective January 1, 2006, established prescription drug coverage for Medicare beneficiaries known as Medicare Part D. One of the provisions of Medicare Part D allows for the Texas Public School Retired Employee Group Insurance Program (TRS-Care) to receive retiree drug subsidy payments from the federal government to offset certain prescription drug expenditures for eligible TRS-Care

participants. These on-behalf payments of $176,221, $211,007, and $212,281 were recognized for

the years ended August 31, 2019, 2018, and 2017, respectively, as equal revenues and expenditures.

E. Risk Management

The District is exposed to various risks related to torts; theft of, damage to, and destruction of

assets; errors and omissions; and natural disasters for which the District carries insurance through the TASB Risk Management Fund (the Fund). There were no significant reductions in coverage in the current fiscal year, and there were no settlements exceeding insurance coverage for each of the past three fiscal years.

F. Commitments and Contingencies

Commitments

Midway ISD has active construction projects as of August 31, 2019. The projects include improvements to school buildings and athletic facilities. At year-end, the District’s commitments with contractors were $330,500.

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Contingencies The District participates in grant programs which are governed by various rules and regulations of

the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies; therefore, to the extent that the District has not complied

with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable may be impaired. In the opinion of the District, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants; therefore, no provision has been recorded in the accompanying combined financial statements for such contingencies.

G. Maintenance of Effort

The District spent $3,513,562 on health insurance premiums for the fiscal year ended August 31, 2019.

preliminary official statement dated february 13, 2020 … · this preliminary official statement...

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